Lower rates opens doors for refinancing homeowners, home buyers

If you purchased a home a year ago and have the equity and creditworthiness to swing it, a refinance today could save you hundreds of dollars a month, thanks to lower interest rates.

Or, if you are in the market to buy a home, lower interest rates and more affordable prices could give you a mortgage that’s hundreds of dollars lower than your rent.

Freddie Mac’s Primary Mortgage Market Survey last week put the average fixed interest rate for 30-year conforming mortgages at 4.91 percent. In California it was 4.88 percent.

Last year at this time, the 30-year fixed rate mortgage (FRM) nationwide averaged 6.14 percent.

On a $500,000 mortgage, considered a “jumbo conforming loan,” expect to pay about a quarter percent more, says Michael D. Rodriguez broker owner of Platinum Capital Mortgage And Real Estate in Salinas, CA.

So at 6.39 percent a year ago, the mortgage (principal and interest) payment on that $500,000 loan would be about $3,124 compared to about $2,733 now for the cheaper 5.16 percent mortgage, a hefty monthly savings of nearly $400, according to Erate.com mortgage calculators.

Put another way, $4,800 a year, is just about enough to cover property taxes, make almost two mortgage payments or perform some equity-boosting home improvements.

Rodriguez says for conforming level loans at or below $417,000, he’s seen fixed rates as low as 4.25 percent, with a point thrown in. Each point equals one percent of the financed amount. Riskier loans that come with a fixed rate for five years are as low as 3.875 percent, but they could adjust up drastically after the fifth year.

Freddie Mac also said the 15-year FRM averaged 4.36 percent, down from 5.81 percent a year ago.

The five-year Treasury-indexed hybrid adjustable rate mortgage (ARM) averaged 4.29 percent this week, down from 5.98 percent a year ago. The one-year Treasury-indexed ARM averaged 4.46 percent, down from 5.33 percent in 2009 at this time.

“These are the lowest rates I’ve seen in 18 years. There are 25 percent more eligible buyers than last year because of lower rates and lower home prices,” Rodriguez said.

He also said because rents have risen in the past year, some buyers could land a monthly mortgage on a low-end priced home that’s as much as $350 to $500 cheaper than rent.

“And then they get the $8,000 tax credit. That’s quite a deal,” he added.

Both home buyers and owners who want to refinance also could have some time-based wiggle room to shop around and dicker for the best interest rate deal.

“Keeping rates at historically low levels for a sustained period of time has to remain a cornerstone of Fed policy until the economy gets back on track,” said Nancy Osborne, chief operating officer of Erate.com, a Santa Clara, CA based interest rate tracker and financial information publisher.

“I don’t suspect rates will begin to rise until we see at least three consecutive months of solid employment growth,” she added.

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