Mortgage Rates Lowest This Year

Mortgage rates have sunk to their lowest level of the year, and if they drop a bit further, as expected, homeowners could start a new surge in refinancings.

“We’re on the edge of a boomlet. We’re definitely not there, but we are slowly creeping toward it,” said economist David Lereah of Mortgage Bankers Assn. of America in Washington.

The average interest rate on 30-year fixed-rate mortgages was 7.47% this week for the second consecutive week, not including add-on fees known as points, according to Freddie Mac.

Rates haven’t been lower since the first week of December, when they averaged 7.44%. And they haven’t been substantially lower on a sustained basis for a year and a half. They fluctuated in the 7% to 7.25% range during December 1995 and January and February 1996.

Lereah and other economists say rates could soon slip back to that range, which wasn’t expected by many analysts early this year. Slowly accelerating inflation was supposed to push interest rates up. But the inflation news has been extraordinarily low lately, and rates have been falling for three months.

“We’re not looking at [rates falling to] 6% or 5.5%, and that’s what it would take to start a real boom in refinancing. But there are still some people for whom refinancing will make sense,” said economist Paul Taylor of America’s Community Bankers, a trade group for savings institutions.

Refinancings are already on the rise. According to the mortgage bankers, 27.2% of loan applications last week were for refinancing, up from 23% a week earlier and 17% in September 1996.

According to Freddie Mac, 15-year mortgages, a popular vehicle for refinancing, averaged 7.01% this week, the same as last week and also the lowest since early December.

On one-year adjustable-rate mortgages, lenders were asking an average initial rate of 5.55% this week, up from 5.53%.

Homeowners need to consider how long they plan to keep their current house and compare their monthly savings from a new, lower-rate mortgage with the cost of refinancing.

On a $100,000 30-year mortgage, for instance, lowering the rate from 8.5% to 7.25% would cut the monthly payment by $87. It could cost about $1,500 to refinance that loan, but refinancing with the same lender can cut the upfront cost considerably.

If fixed rates fall enough, some homeowners with adjustable-rate mortgages may also refinance if they see a chance to lock in a low fixed rate.