Your Mortgage : Rates Up: It Might Pay to Wait for Refinancing : Interest: While fixed-rate loans have been costlier, adjustables appear to be a better deal. But drop in rates is predicted later this year.
The recent run-up in mortgage rates may continue for a few more months, but some economists say they’ll head south again by the middle of the year.
At the same time, the rate increases have made adjustable-rate mortgages far more attractive than they were just a few months ago. But if you’re thinking about refinancing, it might pay to wait: Some experts say fixed-rate loans in the 9 1/2%-range will once again be easy to get this fall.
Contrary to some media reports, the run-up hasn’t caught all the experts by surprise. Exactly four weeks ago, two of the nation’s top economists--John Tuccillo of the National Assn. of Realtors and Jon Hekman of the Claremont Economics Institute--predicted in this column that rates would likely continue rising through March or April and then head down again by midyear.
Those two experts are sticking by their forecasts. “The run-up may last a little longer than I originally expected--it might peak in mid-April or May--but I still think rates will be in the 9 1/2%-range by the third quarter of this year,” Tuccillo said in an interview last week.
Rates on 30-year, fixed-rate mortgages started the year at about 9 3/4%, but have been rising steadily.
Rates last week generally ranged between 10 1/4% and 10 1/2% for so-called “conforming” fixed-rate loans under $187,450 and between 11% and 11 1/4% for “jumbo” loans for more than that amount.
But while rates on fixed mortgages have been rising steadily, introductory rates on adjustable-rate mortgages have remained fairly stable. Starting rates on ARMs are averaging about 8 1/4%, according to the Federal National Mortgage Assn., but many lenders are offering special programs in which the initial rate is as low as 7%.
The widening gap between rates on fixed-rate loans and adjustable-rate mortgages has some experts urging would-be borrowers to consider choosing ARMs.
“The ARMs are looking a lot better than they did a few months ago, when there wasn’t much difference between rates on adjustable-rate mortgages and rates on fixed-rate loans,” Tuccillo said.
“If I was shopping for a mortgage now, I’d take a good look at the ARMs. If rates are lower a year from now--and I think that will be the case--I’d save some money. Or, I could refinance into a fixed-rate loan when rates bottomed out.”
Borrowers are already jumping on the ARM bandwagon. “A month ago, about 80% of all the mortgages we were making were fixed-rate loans,” said Scott McAfee, a top executive at Security Pacific Bank. “Now, about half our customers are choosing ARMs.”
Interest is also growing in more off-beat types of loans. Unique Financial Services in Sherman Oaks, for example, is making several “balloon” mortgages: They have a 9 3/8% rate for the first 12 months and convert to a 10 3/8% fixed-rate for the next six years.
Although the loans are due and payable in seven years, they’re amortized over a 30-year schedule to keep monthly payments manageable.
“They’re great if you’re a first-time buyer and money is going to be tight in your first year of ownership,” said Phillip G. Lichterman, president of Unique Financial. “You’ll probably move before the final payment is due, or you can refinance if you decide to stay longer.”
The recent rate hikes are expected to put a slight damper on the spring home buying season--the time of year when about one-third of all sales are made. “What you’ll probably see is that the spring sales pace might be a little slower than usual, but that sales in June and July will be stronger,” Tuccillo said. “The summer months will siphon off sales from the spring.”
Some experts say that sales and price increases in the condominium segment of the housing market are expected to remain stronger than the single-family market, as more people are priced out of detached homes.
Meantime, many people who already own condos are taking advantage of that market strength by “trading up” into single-family homes.
“They’re getting top-dollar for their condos, and they’re buying at a time when the single-family market isn’t nearly as strong as it was earlier,” said Dion Baker, a broker with Prudential California Realty in Orange.
Homeowners who have been thinking about refinancing, meanwhile, may want to wait a few more months before taking the plunge--especially if they want a fixed-rate mortgage.
“I don’t think this is the best time to refinance, unless you really need the money,” said McAfee at Security Pacific. “Rates will probably come down over the next several months, so it might pay to wait.”
1989 Rank Loan Volume 1988 (in billions) Rank 1. Bank of America $10.42 (3) 2. Security Pacific 9.11 (4) 3. Great Western 8.68 (2) 4. Home Savings 7.86 (1) 5. Wells Fargo 6.69 (5) 6. Home Federal 4.50 (6) 7. World Savings 3.82 (8) 8. First Interstate 3.58 (12) 9. Glendale Federal 2.87 (9) 10. Union Bank 2.84 (16)
SOURCE: Dataquick Information Services, San Diego
