Steamboat Springs Home mortgage rates inched upward by a little more than an eighth of a point this week. For consumers contemplating borrowing $270,000 in a conventional 30-year mortgage, that could translate into an additional $20 on their monthly payment.
Still, home mortgage rates remain within half a percentage point of their lowest level in 40 years, and local mortgage lenders are busy with clients who are refinancing and purchasing real estate.
"I think the purchase market has really picked back up," Mary Crotz said Thursday. Crotz, a loan originator at Alpine Bank in Steamboat Springs, was explaining to a few clients why mortgage rates took an upward bounce after Alan Greenspan and the Federal Reserve Board announced a quarter-point reduction in the overnight lending rate banks charge one another.
"I can only think of one time in the last few years when mortgage rates went down after Greenspan lowered those rate," Crotz said. "Every other time they stayed the same or went up."
The explanation lies in the fact that mortgage rates are tied to the long-term bond market, and the Fed adjustment is to short-term rates. The Fed's motivation in lowering the rate is to drive money out of the bond market and into the stock market. When investors take money out of the bond market, they compensate by charging more for long-term loans.
Crotz said the rate on a 30-year fixed mortgage Thursday stood at 5.125 percent, but that isn't the most popular product among borrowers she works with.
"The five-year ARM (adjustable rate mortgage) is probably our most popular," Crotz said. "It makes sense for any person who doesn't plan to keep their home for more than five years."
At an interest rate of 3.625 percent, the ARM yields a lower monthly payment. For example, for someone borrowing $270,000, the payment on a 30-year fixed (not including escrow) would be about $1,470. The lower rate on the five-year ARM drives that payment down to $1,231.
"A lot of people know they are going to be downsizing," Crotz said. "Their kids are growing up and they know they won't need a big house in a few years." Those are people who are less concerned that interest rates may have gone up significantly when five years are up.
On the other hand, a couple in their 30s who are buying their dream home may find that locking in a 5-percent interest rate for 30 years makes sense.
Another couple contemplating retirement in the next 15 to 20 years, might opt to refinance via a 15-year mortgage at 4.75 percent with the goal of paying the mortgage off close to their retirement date.
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