You've seen the newspaper and TV reports about the great mortgage stampede of 1986. You've read about lenders' jammed phone lines in major real estate markets and desks piled high with loan applications as consumers rush to nail down single-digit mortgage dollars.
You've heard that Veterans Administration loans are going fast at 9 1/2 percent, and that other rates are in free fall, plummeting like gasoline-pump listings in a price war.
What do you make of all this if you are a would-be buyer, seller or refinancer this spring? Here are some thoughts on that question, based in part on discussions with top mortgage economists and lenders in Washington and on Wall Street.
The Federal Reserve Board's monetary policies will be among the most critical determinants of the direction that mortgage interest takes in the next four weeks. Ask a man with a unique perspective on where the Fed's policies -- and interest rates -- are headed and you come up with a highly practical answer.
Economist Lyle E. Gramley was a member of the Board of Governors of the Fed for five years, prior to joining the Mortgage Bankers Association of America last fall. He says without hesitation: "Mortgage rates have already seen 90 to 95 percent of their drop" for this year's cycle. With national economic growth likely to be strong for the balance of 1986, plus heavy demands on credit supplies from government, business and consumers, the Federal Reserve "is not likely" to push rates down significantly in the coming months, in Gramley's view.
That means nail your mortgage money down now. Rates may slide another one-quarter of a percentage point in the next week or two, but that's it. Don't bank on the Fed to give you a fixed-rate mortgage of 9 percent or under this summer. It's not in the cards, Gramley warns.
What about fixed rates versus adjustables? Do you have any reason whatsoever to pay attention to lenders' quotes on the latter? On the face of it, fixed rates are the superior choice. They haven't been lower in seven years. But the fixed-rate packages being offered by local lenders may be slightly less generous than they appear:What's the annual percentage rate on the loan package you're being offered? Some new buyers and refinancers are finding that "single-digit" 9.8 percent fixed rates translate to between 10 1/2 and 11 percent when the "points" and fees up front in cash are factored in. Can you afford those cash points when they're part of a fixed-rate refinancing? If you've got to pay five to six percentage points in fees at closing to get refinanced into a 9.8 percent fixed rate, how long will it take to recoup those dollars? Put another way, even single-digit, fixed-rate mortgages aren't for everybody this spring.
What about adjustable-rate loans? If you want to see some real price competition the next few weeks, watch what local lenders -- especially savings and loan associations -- start doing with their adjustables.
Look for cuts in the base rate on one-year ARMs to the 8 percent range, plus costs in the "margins" S&Ls tack onto ARM index rates.
Combine a rate in the low 8 percent range with low points at closing, low down-payment requirements, plus annual rate "caps" of one to two percentage points, and you may find an adjustable to be your lowest-cost alternative.
What about selling your house this spring? If fixed-rate mortgages begin to firm up in the 9 1/2 percent range or slightly below, the country should see the most vigorous selling and buying season of the decade during the first half of 1986.
That means more potential purchasers for your home, with more loan money available to them. That, in turn, means you can ask -- and have reason to receive -- a premium price for your home.