Mortgage-Rate Patterns Sway Amid Changing Landscape

The mortgage shopping basics have been turned on their head.

It used to be that 30-year fixed-rate mortgages carried higher interest rates than adjustable-rate loans available at the same time.

But mortgages that adjust in one year have been slightly more expensive for the last two weeks, according to a Freddie Mac survey released yesterday. The average rate on those loans was 4.82 this week compared with 4.8 percent for a 30-year fixed loan. Usually the gap between the two is much wider.

"This is the first time this has happened since Freddie Mac began collecting data for [adjustable loans] in January 1984," Frank Nothaft, Freddie Mac's chief economist, said in a statement.

The rate on a hybrid loan that's fixed for five years and adjusts every year thereafter is even higher -- averaging 4.85 percent. It has been higher since late March.

That's not how it used to work. Lenders charged more for a fixed-rate loan because they took on added risk by financing it. But with adjustable loans, borrowers bear the risk of rates going up, so lenders enticed them with lower introductory rates.

The landscape has changed since then. The mortgage market collapsed. Investors lost their appetite for adjustable loans, which have been closely tied to soaring foreclosure rates. And the Federal Reserve adopted policies aimed at driving mortgage rates down.

"The shame of it is that fewer people can qualify for these super low rates," said Barry Glassman, a financial planner in McLean. People who lack equity in their homes, cash for a down payment, or stellar credit do not qualify for the best deals.