Rates Are At Record Lows



-In a July 22 release by Freddie Mac’s Primary Mortgage Survey, the 30-year and 15-year fixed-rate mortgages reached record lows. The survey for 30-year fixed-rate mortgages began in 1971 and for the 15-year began in 1991.

The average fixed rate for a 30-year mortgage was 4.56 percent with around one point. The average for the 15-year mortgage was 4.03 percent with a 1 percent origination fee.

Adjustable rate mortgages (ARMs) also saw new lows. The average for a five-to-one ARM was 3.79 percent with a 1 percent origination fee.

One year ago the averages were substantially higher: 5.20 percent on 30-year fixed, 4.68 percent on 15-year fixed and 4.74 percent on 5-year ARMs.

Besides the significant fall in rates, another item of importance is the new spread between ARMs and fixed rate mortgages. A year ago, a five-to-one ARM was actually more expensive then a comparable rate on a 30-year fixed-rate mortgage. Today an ARM carries a significantly lower rate of around 80 basis points.

Folks with ARMs that are adjusting now will end up with fully adjusted rates around 3 percent. This would be for “A” paper loans. ARMs for less credit-worthy clients would adjust higher.

The interest rate nadir is due to a combination of weakening confidence in the economy which causes a flight to safer investments. Another factor is the lack of inflation and the prospect of deflation. These factors ultimately drive interest rates lower.

Last week, Federal Reserve Chairman Ben Bernanke testified before Congress, stating that the “Fed expects a gradual recovery to continue, and it believes the current policy stance is appropriate to support a recovery.” Translation? The Fed is not changing rates any time soon. There will be small likelihood of a rate hike well into 2012.

Some well respected economists are calling for the yield on the 10-year Treasuries to go to the mid 2 percent range, and perhaps down further to the 2.2 percent range.

If so, one will need to meet the demands of today’s underwriting standards. Expect a full documented loan. This means pay stubs and possibly tax returns will be required for income verification. Assets will be verified using bank and stock statements and good credit.

Expect mortgage rates to continue to remain attractive for the near future at least. This is truly a great time to refinance or buy a home.

Bill Starrels is a senior mortgage loan officer who specializes in refinance and purchase money mortgages. He lives in Georgetown and can be reached at 703-625-7355.

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