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Window Will Close On Bargain-Rate Mortgages In Spring 2018

Potential home buyers and families who have not yet refinanced their old, high-rate mortgages should forget about tax reform and hustle down to their local lender—now!

That narrow window to lock in a bargain-rate below 4% home loan this year is closing, experts say.

Benchmark 30-year fixed-rate mortgages nationwide declined slightly to an average of 3.93% on December 14th from 3.94% a week earlier, reported Freddie Mac’s Primary Mortgage Market Survey. A year ago, 30-year fixed loans averaged 4.16%.

Average 15-year fixed loans held steady at 3.36%. A year ago, 15-year fixed mortgages averaged 3.37%.

On December 13th, the Federal Reserve Board’s Open Markets Committee raised interest rates by 25 basis points, moving the target range for the federal-funds rate ranging from 1.25% to 1.5%. It is the third time the Fed has raised the federal-funds rate this year, a trend that is expected to continue in 2018.

“As widely expected, the Fed increased the federal-funds target rate for the third time in 2017,” said Len Kiefer, Deputy Chief Economist for Freddie Mac. “The market had already priced in the rate hike so long-term interest rates—including mortgage rates—hardly moved.”

On December 15th, reported that 30-year fixed home loans were generally available in the range of 3.756% to 3.983% in the Chicago-area.

Mortgage rates have been in a holding pattern for most of the fourth quarter of 2017, remaining within a 10 basis-point range since October, but now economists are predicting that rates will move higher in 2018, Kiefer said.

“The Fed recently forecast raising rates three more times in 2018, but with tax reform now looking like a done deal that could provide a stimulative effect on the economy. “I think it seems logical to expect four hikes next year,” predicted Steve Rick, chief economist for CUNA Mutual Group.

If the rate bumps continue, three years from now the Fed’s target for short-term rates will reach 3.1%, which is slightly above its estimate of a long-term neutral rate of 2.8%.

Because 30-year fixed-rate mortgages are pegged to 10-year U.S. Treasury bond interest rates, they are only indirectly affected when the Fed increases its short-term federal-funds rates, analysts said. But the Fed’s moves do have a psychological effect on the mortgage market.

For example, at the end of 2016—following the election of President Donald Trump, and a quarter-point Federal Reserve Board interest rate hike—benchmark 30-year loans spiked to 4.3%.

Mortgage rates hit a historical rock bottom on November 21, 2012, when the benchmark 30-year fixed mortgage average fell to 3.31 percent, while 15-year fixed loans edged downward to 2.63 percent, according to Freddie Mac.

With interest rates likely to rise in 2018, holding on to an adjustable-rate mortgage (ARM) is not a good idea. Homeowners who financed their home or condominium purchase with an ARM especially should be shopping now to refinance into the safe haven of a fixed-rate loan, experts advise.

Rates on one-year adjustable-rate mortgages (ARMs) are modified annually based on short-term interest rates. So, if a homeowner’s ARM rate currently is 4.75%, the four quarter-point Fed hikes forecast in 2018 likely would push the loan rate to 5.75% when it adjusts in 2019, possibly boosting the typical jumbo mortgage payment by hundreds of dollars.

A year ago—with interest rising at the end of 2016—homeowners seized the opportunity to refinance their mortgages and many locked in fixed-rate loans.

Some 883,836 refinanced loans totaling $246 billion were originated in the fourth quarter of 2016, reported ATTOM Data Solutions’ U.S. Residential Property Loan Origination Report. That’s a 20-percent increase in loans, and a 27-percent hike in dollar volume from the previous year. More than 3.3 million refinances and over 2.7 million home purchases were originated in all of 2016, according to the report.

Some economists have predicted that 30-year home-loan rates could rise as high as 4.75% by the end of 2018. However, if inflation heats up, 30-year fixed-rate loans could hit or surpass 5% in 2019, some analysts say.

If you are planning to buy a home or condo before higher rates price you out of the market, there are a few facts you should know:

• History is on your side. On the positive side, home-loan rates still are historically low. The annual average rate from 1972 through 2011 was higher than current rates. In 1999, benchmark 30-year mortgage rates were 8.15%. In June of 2003, lenders were charging an average of 5.21%. That’s an interest rate borrowers may see again in 2019.

• Mortgage limits expanding. Because of higher home prices, the typical conventional home-mortgage limit for loans purchased by Fannie Mae and Freddie Mac in the secondary market recently was hiked to $453,100 from $424,100 for 2018. Also, the Federal Housing Administration recently increased the loan limits on FHA-insured mortgages. In Chicago and Cook County, the mortgage limit for an FHA single-family home loan will rise to $365,700 on January 1st, 2018.

• Lower down payments available. New programs at Freddie Mac and Fannie Mae allow the secondary mortgage market gurus to purchase loans from lenders with lower 3-percent to 5-percent down payments, opening homeownership to more first-time buyers.

• More lenient credit scores. The average FICO score for home buyers obtaining mortgages backed by Freddie Mac currently is 750, a relatively high score. However, if a borrower is approved for a Federal Housing Administration-insured (FHA) loan, the score averages only 700.

For more housing news, visit Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit

“The book is Escaping Condo Jail by Sara Benson and Don DeBat. I would say that anybody thinking about buying a condo, or even anybody serving on a condo board, or anybody who has any connection to a condo, this is must reading—all 600 and something pages. Thanks a lot for a great book!”


Steve Sanders, “Your Money Matters” WGN TV, December 22, 2014

By Don DeBat

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