Low Mortgage Rates Boost Refinancing : Lending: Homeowners are rushing to take full advantage of adjustable rates as low as 3 5/8%.

Mortgage rates are fast plunging to record low levels, sparking an explosion of refinancings as consumers see bargains in fixed and adjustable-rate offerings.

About 20 lenders across the country have begun offering adjustable-rate mortgages with interest rates of 5% or less for the first year. One lender is even offering a daily adjusting teaser rate of 3 5/8%.

“I’ve never seen rates this low in my professional career,” said Richard Peach, deputy chief economist for the Mortgage Bankers Assn., a Washington trade group. “It’s just great for consumers. People are able to refinance and save significant amounts of money.”

Spurred by sluggish borrowing demand brought on by the stalled economy and moribund real estate market, mortgage rates of all kinds have plunged to their lowest levels since the mid-1970s.

The drop has been particularly precipitous for ARMs, which have been offered for only about a decade and are at their lowest level ever. The national average starting rate on a one-year ARM, which adjusts annually, stood at 6.19% on Friday, down more than 1 1/2 percentage points from this year’s high of 7.79% posted on Jan. 4, according to HSH Associates, a Butler, N.J., firm that tracks mortgage rates.

Rates on conventional, 30-year fixed-rate loans are also down to 8.64% from 9.83% in January. That’s the lowest rate in 14 years, according to HSH.

The lower rates have done little, so far, to jump-start the sluggish housing market. But they have fueled refinancings, which are forecast to jump to $162 billion this year from $72 billion in 1990, according to the Mortgage Bankers Assn.

Citibank says it is getting “good response” in California, where it is testing its ultra-low 3 5/8% ARM. The starting interest rate is based on the London Interbank Offered Rate and adjusts daily. But as a “negative amortization” loan, interest on the ARM can accrue faster than it is paid by the borrower in certain circumstances because there is no ceiling on how high interest rates can adjust upward, loan officials say.

Inquiries have doubled at two Texas lenders who offer 4 7/8% adjustable-rate mortgages in California that don’t have negative amortization: Capitol Mortgage Bankers Inc. of Austin and Accubanc Mortgage Co. in Dallas.

Accubanc’s ARM has some particularly attractive features, experts say. Its interest will not adjust more than two percentage points in a year, and a lifetime rate cap limits upward adjustment to a maximum rate of 10 7/8%, said Patricia Claney, Accubanc’s branch operations manager in Concord, Calif. In addition, the loan is convertible to a fixed-rate mortgage between the 13th and 60th month for a $250 fee.

Yet as low as mortgage rates are, many experts predict that they could head lower after the Federal Reserve Board’s policy-setting Federal Open Market Committee meets today amid evidence that the weak economy may need another round of rate cuts.

But experts caution those contemplating new debt. A number of costs are associated with taking out a loan, including fees for credit applications, title reports, appraisal and deed recordings. What’s more, most lenders charge borrowers a 1% to 3% fee, known as “points,” for making the loan. All told, a borrower can pay as much as 4% of the loan amount on closing costs.

To determine if refinancing a home is wise, a consumer needs to look at several things: the difference between his old loan rate and current market rates, the amount of equity he has in his property and how long he plans to remain there. Generally speaking, if you can obtain a loan at an interest rate at least two percentage points below your current rate, experts say it may pay to refinance if you intend to remain in your home for at least two more years.

However, if you put down less than 20% when you bought your home or if your house is one of the many across the country whose value has decreased significantly, you may have difficulty financing.

On the other hand, today’s low mortgage rates make it possible for many more house hunters to afford a mortgage. Lenders note that the monthly payment on a $100,000 loan at 5% is just $537, less than the rent on apartments in many parts of the country.

Even so, lenders say many people are remaining on the sidelines, expecting rates to go lower.

“It appears to us there are many people who believe rates will go lower,” said Cliff Piscitelli, president of Irvine-based Frontline Mortgage Co., which offers an adjustable-rate mortgage with a first-year start rate of 4 7/8%. But as with all gambles, Piscitelli said of those waiting for rates to hit rock bottom: “Some will win and some will lose.”