Finding A Deal As Rates Rise - mortgage rates - Brief Article - Statistical Data Included

Kiplinger's Personal Finance Magazine, Sept, 2001 by Elizabeth Razzi

MORTGAGES | Higher rates will give HYBRID LOANS more appeal.

BAD NEWS: Those six cuts in short-term interest rates engineered by the Federal Reserve Board this year had the opposite effect on long-term mortgages--rates are up and headed even higher this fall.

The average rate on a 30-year fixed-rate mortgage was recently 7.42%, when you look at a mix of loans that includes regular and "jumbo" mortgages (loans for more than $275,000). Rates might rise by as much as one-half percentage point this fall, according to Keith Gumbinger, vice-president of HSH Associates, which tracks rates.

The Fed's rate cuts did pay off in lower costs for adjustable-rate loans. One-year ARMs are now at about 6.13%, a savings of 1.29 percentage points from the average 30-year fixed-rate loan.

The changing landscape is focusing attention on 5/1 hybrid loans, especially in the jumbo market. These loans recently carried a fixed rate of 6.77% for five years, after which they convert to a one-year adjustable loan. Although jumbos carry a higher interest rate than smaller loans, the bigger loan balances make even slightly lower rates worth the hunt. On a $400,000 mortgage, a borrower can save $2,100 a year over the first five years by choosing a 5/1 hybrid at 6.77% instead of a fixed rate of 7.42%.