Record Rates Increase Home Purchase Opportunities

Mortgage rates drop to record lows, with 15-year loans below 3 percent

June 4, 2012

By DAVID SLADE The Post and Courier - McClatchy-Tribune Information Services

Mortgage interest rates fell to record lows this week, breaking records set in each of the four previous weeks and making home ownership increasingly affordable for those able to secure new or refinanced loans.

"For those homeowners that are prepared, this is an opportune time to pursue homeownership," said Michell Mapp, executive director of the nonprofit Lowcountry Housing Trust, in North Charleston, S.C. "Lower rates combined with lower home values creates an environment for many young families and first- time homebuyers to purchase a home instead of renting."

Mortgage buyer Freddie Mac's weekly rate survey on Thursday pegged the 30-year fixed rate at an average of 3.75 percent, and the 15-year rate at "an unprecedented" 2.97 percent.

With each downward tick in rates, the mortgage payment on home purchase gets smaller.

Someone borrowing $150,000 for 30 years at today's rates would pay $695 monthly, while someone who borrowed the same amount at rates available five years ago would be paying $925.

Record low rates have prompted a flood of mortgage refinancing.

"Refinance activity is nonstop," said Matt Snipes, senior loan officer at PrimeLending in North Charleston. "At these levels we're having conversations with people who have a current mortgage at 4.5 percent."

"You can get your nonrecoverable costs down below $2,000 these days and make it up in 18-24 months," he said.

Costs involved with refinancing can include appraisals, application fees, title work and other charges.

The rate for 15-year loans, a popular refinancing option, fell below 3 percent this week for the first time. That means someone who took out a 30-year loan when rates were higher could have several good options.

For example, a homeowner who borrowed $150,000 five years ago at prevailing rates, around 6.25 percent, would owe just over $140,000 today and have 25 years left on their loan. They could refinance the debt as a 25-year or 30-year loan and slash their monthly payments, or they could refinance into a 15-year loan, which would raise their monthly payment by $40 and pay off the house a decade early.

Unfortunately, many homeowners have been unable to take advantage of the savings because they owe more than their houses are worth and cannot refinance. And many would-be homeowners have been stymied by tighter lending standards, with banks demanding larger downpayments and higher credit scores than before.

"It is ironic," said Mapp. "There has never been a better time to get an affordable mortgage with these record low rates, yet it probably has never been more difficult for the average worker to save the required down payment and get approved for a loan."

When lower mortgage rates are combined with depressed real estate prices, the monthly mortgage payment required to own a home in the greater Charleston area has fallen dramatically since 2007 when home prices peaked.

Mortgage rates have been dropping because they tend to track the yield on the 10-year Treasury note, which has fallen this week to a 66-year low. Uncertainty about how Europe will resolve its debt crisis has led investors to buy more Treasury securities, which are considered safe investments. As demand for Treasurys increase, the yield falls.

To calculate average rates, Freddie Mac surveys lenders across the country on Monday through Wednesday of each week. The average rates do not include extra fees, known as points, which most borrowers must pay to get the lowest rates.

The Associated Press contributed to this report.