By Susan Tompor, Detroit Free Press –
Mortgage rates aren’t driving new house payments quite as low as a luxury car lease, but boy, it’s getting close in some neighborhoods.
We’re talking about another mortgage rate record low this week, the lowest on record since long-term mortgages were invented in the 1950s. The rate on the 30-year loan has fallen to or matched record lows in 11 of the past 12 weeks.
“Low mortgage rates alone don’t prompt people to buy houses any more than people decide to get married because of a sale at the bridal shop,” according to Greg McBride, senior financial analyst for Bankrate.com.
True, but we all have heard of more than one woman who bought a deeply discounted wedding gown on spec. A sale is a sale.
Interest rates are falling because of the European debt crisis, as well as worries about a slow economy in the U.S. and elsewhere. It’s not exactly good news driving rates down, but lower rates could be a plus for some households.
Many experts say rates could remain low for much of 2012 into next year.
A new homeowner could be looking at a monthly payment of $465.39 a month on a $100,000 mortgage. That’s based on a 30-year rate of 3.79 percent with nearly no points, McBride said.
A year ago, that payment would have been around $518 a month. That doesn’t include property taxes and insurance. So are we likely to see people rushing to buy houses soon?
Maybe, but it’s not a guarantee.
Mortgage buyer Freddie Mac reported the average rate on a 30-year loan fell to 3.56 percent. That’s down from 3.62 percent last week. The average rate on the 15-year mortgage, a popular refinancing option, dipped to 2.86 percent, below last week’s previous record of 2.89 percent. Consumers who are tempted by the low rates and want to buy a new home — or refinance a mortgage — should start doing their homework.
Do not ignore fixed mortgage rates, which could be the safest bet for many. If opting for an adjustable-rate mortgage, make sure to carefully read the terms and know when rates and payments could head higher.
Tim Ross, president and CEO of Ross Mortgage in Royal Oak, Mich., said the number of new homebuyers taking advantage of low rates is significant. But he stressed, as did others, how important it is for borrowers to prepare and make sure they have the best credit picture possible before looking for a mortgage.
“Credit scoring is a critical component of getting financing today,” Ross said.
If someone has a FICO score below 620, Ross said, getting a mortgage becomes more difficult. He said mortgages are basically unavailable for scores below 580.
McBride noted that people in general do not need perfect credit, though, to get very low rates. Consumers with a FICO score of 700 or better can qualify for some of the lowest rates, he said.
When Ross talks to friends or others at parties, many bring up just how impossible it is to qualify for a refinancing or a mortgage. But he said that’s not true, noting that mortgages and refinancing are available.
Bob Walters, chief economist for Detroit-based Quicken Loans, said it’s “more myth than reality” when people talk about incredibly tight lending standards today and how impossible it is to qualify for a mortgage.
Basically, Walters said getting a mortgage depends on decent credit, a job, a down payment and being able to afford to make the monthly mortgage.
Walters said it’s hard to say whether home prices would fall further, but he said there isn’t much likelihood that prices would fall dramatically lower. He noted that in some areas it is more expensive to rent than buy a home — and that is driving up some home sales.
Homeowners who owe more on the house than the house is worth — or are underwater — may be able to refinance now, he said. And that’s true even if they could not refinance a year ago, Walters said.
People should shop around for a lower rate on a mortgage — and some may need to shop around a bit more to qualify.
“Don’t take the first ‘no,’” Walters said.
If mortgages are at record lows, though, does that mean the sale is going to end soon? Should people rush into getting a mortgage?
No — just like most people should not rush into marriage.
“Neither home prices nor mortgages are going to run away from you,” McBride said.
