Drop in Rates For Mortgages Gets Attention Of Borrowers

By Dina ElBoghdady
Washington Post Staff Writer
Friday, September 12, 2008

For the first time in months, interest rates slipped below 6 percent this week, prompting Donna Gillis to immediately refinance the mortgage on her D.C. rowhouse.

"It would have bothered me not to be in the 5 percent range, even though the monthly payment would not have been much more," said Gillis, who locked in a rate of 5 7/8 percent on Monday.

A weekly survey released by Freddie Mac yesterday shows that 30-year fixed rate loans averaged 5.93 percent this week, down from 6.35 percent last week and 6.31 percent at the same time a year ago.

Monthly principal and interest payments on a $200,000 mortgage at 5.93 percent are $1,190. That's $54 less than at the previous week's rate.

The dip followed the federal government's takeover of mortgage giants Freddie and Fannie Mae. It's by no means a historic low. The 46-year low was 5.37 percent in 2003, according to research firm HSH Associates. But it's an attention-grabbing number for borrowers who have not seen rates under 6 percent since early spring.

"That 6 percent level is kind of a psychological break point," said Keith Gumbinger, a vice president at HSH Associates. "Consumers see a five in front of mortgages, and they get excited."

Joan Caton Cromwell, a real estate agent at Long & Foster's Chevy Chase, D.C., office, said much of the excitement has come from people looking to refinance, not buy.

"I had two calls just yesterday alone," Cromwell said. "One of them was from someone who had settled on their home on July 7, and they wanted to refinance because their lender told them the rates were below 6 percent. . . . For most people, five sounds like a bargain, six sounds fair and seven sounds high."

As many lenders point out, the rates have zigzagged since the takeover was announced. On Monday alone, rates ranged between 5 7/8 percent and 6 percent, said Steve Calem, vice president of real estate lending at American Bank in Rockville. "It doesn't go in a straight line," Calem said. "Rates move up and down, especially after a big event."

In other words, just because your neighbor was quoted 5-something percent yesterday -- or even an hour ago -- does not mean you will get the same rate or better.

Besides, there are lots of factors. The borrowers most likely to secure the lower rates are those with good credit scores, a decent amount of equity in the house, and money to put toward closing costs and fees known as points .

The mortgage rates as stated in the Freddie Mac survey do not include points, which reduce the rate. The nationwide fee for a 30-year mortgage averaged 0.7 point last week. A point is 1 percent of the amount of the loan.

"Every day there's a sliding scale," said Mark Fegani, a mortgage banker and president of Olympia West Mortgage in Vienna. "Even last week, people could have gotten interest rates in the fives if they wanted to pay some points."

But not everyone will be able to qualify, especially if they're trying to refinance a home that's dropped in value or take out cash.

The toughest challenge for many is that they owe more than their homes are now worth.

At First Savings Mortgage in McLean on Monday, one loan officer had to turn away all but three of the 75 customers who wanted to refinance, said Larry Pratt, the bank's chief executive. "Some borrowers are going to be very frustrated."

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