Home buyers and homeowners seeking to refinance this spring now have an opportunity to lock in the lowest mortgage rates in three years.
Benchmark 30-year fixed home-loan rates slipped to an average of 3.57 percent in mid-May from 3.61 percent a week earlier, reported Freddie Mac’s Primary Mortgage Market Survey. A year ago at this time, 30-year fixed loans averaged 3.85 percent.
“Disappointing April employment data once again kept a lid on Treasury yields, which have struggled to stay above 1.8 percent since late March,” noted Sean Becketti, chief economist at Freddie Mac. “As a result, the 30-year mortgage rate fell 4 basis points to a new low for 2016 and the lowest mark in three years.”
Becketti said prospective home buyers now can “take advantage of a falling rate environment that has seen mortgage rates drop in 14 of the previous 19 weeks.”
In the Chicago area, 30-year fixed home-loan rates available on May 13th at selected banks and mortgage companies ranged from a low of 3.375 percent at Rock Bottom Mortgage to 3.625 percent at Fifth Third Bank, reported Bankrate.com.
Borrowers seeking a 15-year fixed mortgage last week found the average loan rate of 2.81 percent, down from 2.86 percent a week earlier. A year ago at this time, the 15-year fixed-loan average was 3.07 percent.
“The average 30-year rate will likely remain under 4 percent throughout the spring and summer and into the early fall,” predicted Jonathan Smoke, chief economist for Realtor.com®.
However, Smoke advised that buyers should monitor rates closely and expect fluctuations. “In this type of environment it will be crucial for would-be buyers or refinancers to stay on top of rates, work closely with mortgage brokers or lenders and learn about options like [rate] locks and float-downs.”
Because rates have been volatile this year, Smoke said borrowers are likely to see both lower and higher rates between the time they take out a loan application to the closing.
Rate locks and float-downs do come at a price, “so you need to weigh the potential gains against the cots with your lender,” he said.
Mortgage experts say home buyers who plan to place a 20-percent down payment and reside in their house more than seven years should choose a 30-year fixed-rate loan at 3.57 percent, instead a five-year adjustable-rate mortgage (ARM) at 2.89 percent.
While mortgage rates generally have moved lower over the past year, also, be wary of rate volatility if you choose a 1-year adjustable-rate mortgage.
An owner of a 4-flat on the North Side was shocked to see his rate on a 1-year ARM mortgage rise from 3.875 percent to 4 percent in July of 2015. The stunned borrower just received notice that the loan will adjust upward to 4.25 percent on July 1, 2016. The new quarter-point rate hike raised the mortgage payment $67.62 a month, or $811.44 more per year.
When the borrower asked why the rate was increased, PNC Mortgage gave the following reply:
“We calculated your interest rate by taking a published ‘index rate’ and added a certain number of percentage points, called the ‘margin.’ Under your loan agreement, your index rate is the weekly average of 1-year Treasury constant maturity and your margin is 3.75 percent.”
The weekly average of 1-year Treasury constant maturity index is published weekly in the Federal Reserve statistical release. Visit: www.federalreservegov/releases/h15/current.
The borrower was told that his mortgage interest rate “cannot go higher than 12.125 percent over the life of the loan, and the rate can change each year by no more than 2 percent.”
No wonder the borrower is shopping this spring to refinance and lock in a 30-year fixed rate loan.
For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.