Mortgage rates take a dive

NEA Today, Apr 1998 by Rowland, Mary

It's a great time to buy or refinance. But how much mortgage can you afford?

It's spring. The economy is up. Interest rates are down. This is the perfect time to buy, refinance, or renovate a home.

Home buyers have one question when mortgage interest rates move lower: Should I lock in or try to time the bottom of the market?

"Lock in your interest rates," advises Keith Gumbinger, vice president of HSH Associates, a firm that compiles data about mortgage rates and trends. "Don't try to time the bottom of the market. Lots of people get burned that way."

As this issue was going to press. rates were tantalizingly low-15-year mortgages were available in the 6 1/2 percent range, 30-year mortgages for just over 7 percent.

"Right now rates are as low as they're going to go: says Gumbinger. "But we don't expect the window of opportunity to slam shut on anybody."

The drop in rates during the fourth quarter of 1997 and the first quarter of 1998 was a result of problems in Asia, says Gumbinger.

"Money started coming into the U.S. and going into Treasury securities, which brought rates down." he explains.

Gumbinger doesn't expect the happy situation to last into summer, but he doesn't expect a significant rise in rates either.

"They're more likely to go up than down," he notes. "But we expect favorable interest rates for some time."

If you're house hunting or thinking about refinancing. one of the best places to start is on the HSH Web site at www.hsh.com. You'll find a wealth of information about mortgage rates, closing costs. mortgage qualifying information, and even help if you've got impaired credit.

Qualifying rules for mortgages have not changed much in recent years. That's because the bank where you get your mortgage probably won't keep that loan on its books. Instead, it sells your mortgage in the "secondary mortgage market," where it's combined with other mortgages, which are then sliced up and sold as securities.

To qualify for resale. a mortgage must be taken out by a borrower who falls within a certain "debt-to-income ratio." One industry standard requires that monthly mortgage costs represent no more than 28 percent of your monthly income, or total debt be no more than 36 percent of your income. However, some lenders will allow you to qualify for a larger mortgage. At the HSH Web site, you can download a financial calculator that will help you figure out how much of a mortgage you can handle. The calculator also shows you what you can expect to pay in closing costs.

For example. suppose you are looking at a $100,000 home and expect to pay 8 3/4 percent on your mortgagewhich is. of course, high by today's standards.

The calculator shows you that if you put 20 percent down. you would need a monthly income of $2,904 to qualify for the mortgage and about $24,458 at closing Your monthly payment would be $813.32. By tinkering with these numbers, you can target exactly how much house you can afford.

And by looking at the current rates, you can decide what type of mortgage is best for you. For example. this is a great time to lock in a 15-year mortgage-at the end of January, there were many available in the 6 1/2 percent range.

But one-year adjustable rate mortgages are not very attractive now. Rates in the 5 1/2percent range are not much of an incentive to gamble that rates will come down in the next year.

Resources

Turn to NEA Member Benefits if you're looking for a new mortgage or want to refinance an existing one. With the NEA Home Financing Program(R), you'll get competitive rates, instant prequalification, and a fast loan decision-all over the phone. You'll also get a $150 member rebate after closing. Plus, you can take advantage of a low down-payment option and a more flexible qualifying ratio (debtto-income ratio).

For more information, call the NEA Mortgage QuickLine(R) at 800/NEA-4-YOU (800/632-4968), Monday-Friday, 8 a.m.-midnight ET, and speak with a mortgage counselor. Home equity loans are also available.