Mortgage rates steady, but poised to go higher

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The Federal Reserve Board's plans to raise interest rates at the end of June will affect mortgage rates, which have remained relatively stable since late May.

Federal Reserve Chairman Alan Greenspan said last week that the bank might raise the Federal Funds rate, an overnight lending rate between banks, to combat inflation.

The response of various economic factors probably will push mortgage rates up again, but lenders are hesitant to guess how much.

"It's hard to predict. ... It's already kind of priced in there," said T. Kelly Bohmer of Highlands Capital Group LLC, explaining that the Federal Reserve Board's rate hike has been anticipated for some time because of positive employment reports and increased consumer confidence.

The national average rate on a 30-year, fixed-rate mortgage last week was 6.28 percent. The average rate Thursday was 6.42 percent -- the biggest change since mortgage rates leveled out in mid-May, according to a survey by the Freddie Mac corporate mortgage company and HSH Associates, Financial Publisher.

In general, local lenders said rates on 30-year, fixed-rate mortgages hovered at about 6.25 percent in the past two weeks.

Lenders agree that mortgage rates are not likely to fall back into the record low percentages seen in 2003.

"If anybody hasn't refinanced, they better do it now," Mary Crotz of Alpine Bank said.

Unlike last year, the refinance business has all but closed down for most mortgage brokers.

This time last year, refinancing loans made up about 70 percent of Bohmer's loan business, but the number of purchasing loans began to catch up with refinancing business in April as mortgage rates started to climb.

"Last summer was good, but not that good on the purchasing side ... it's time to reconnect with Realtors," Bohmer said.

Because of the rising rates, now is a good time for buyers to consider adjustable-rate mortgages, he said.

A one-year adjustable rate mortgage averaged 4.31 percent Thursday, according to an HSH Associates survey.

Lenders agree that one of the biggest factors influencing the rise in mortgage rates has been the gradual drop in unemployment rate, which was 5.6 percent in May, down from 6 percent in October.

About 1.2 million new jobs have been generated this year, according to U.S. Bureau of Labor statistics.

"The jobless growth that was the buzz earlier seems not to be the case anymore," said Josh Kagan, loan consultant with Yampa Valley Mortgage.

Barring any unforeseen circumstances, such as terrorist acts, Kagan also expects the rates to rise toward the end of the month.

Many factors can affect mortgage rates, but in general, "good news essentially makes the rates go up, and bad news, or perceived bad news, can make the rates go down," he said.

When it comes to advising clients on whether to lock into rates, however, lenders such as Crotz are hesitant to rely on typical trends.

During an election year, mortgage rates generally hold steady during the summer, drop right before the presidential election in November and then rise afterward, she said.

But the transfer of power in Iraq scheduled for June 30 could put an unpredictable spin on mortgage rate expectations.

"It's such a weird year to guess what rates will do," said Crotz, who is advising clients who are happy with their rates to lock them in.

Among the growing number of purchasing loans, lenders report seeing more and more interest-only loans, which allow buyers to make payments only on the interest that accrues on principal.

Buyers obtain the property, are able to deduct the mortgage interest from their taxes and, if the property appreciates, which is fairly certain in Steamboat, make a profit when they sell.

Bohmer said it's a good way for buyers staying for a short period of time to get their feet into Steamboat's expensive real estate market.

Rates for interest-only loans are typically an eighth- to a quarter-cent higher than fixed-rate or adjustable rate mortgages, he said.

-- To reach Tamera Manzanares call 871-4204 or e-mail tmanzanares@steamboatpilot.com

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