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  Mortgage Rates

Mortgage rates fall again
Twist my ARM: Interest hikes yield delayed jump in refis

The Business Journal Serving the Greater Triad Area

The steady increase in interest rates during the past two years is starting to have a real impact on those whose adjustable-rate mortgages had a two- or three-year lock before rates could rise.

The number of mortgage applications nationwide fell 1.5 percent during the last month, according to the Mortgage Bankers Association. But, the number of refinancings remained steady during the past month, and even saw a 2.3 percent increase during the last week of July.

While Triad figures are not available, several local mortgage brokers say they have seen similar activity here and attribute most of it to adjustable-rate mortgages.

Kate Crawford, branch manager of the Burlington office of Corporate Investors Mortgage Group and the secretary of the National Association of Mortgage Brokers, estimates her office has seen a 15 percent increase in refinances because of adjustable-rate mortgages within the last few months.

While most other brokers say their increases haven't been that dramatic, they are seeing interested clients.

"We've got repeat customers who came in two or three years ago and got an adjustable-rate mortgage and now want to refinance and lock in" their rates, said Melinda Pressly, vice president for Omega Mortgage in Greensboro.

Adjustable-rate mortgages gained popularity a few years ago, especially among first-time home buyers. The mortgages begin with a low introductory rate, often for two or three years. The rate is then increased or decreased at designated time intervals, usually annually, based upon the interest rates on a designated index.

Over the past two years, the Federal Reserve has raised interest rates 17 times. During that same time, the prime interest rate, to which most adjustable-rate mortgages are tied, has risen from 4.25 percent on Aug. 1, 2003, to 8.25 percent to Aug. 1, 2006.

Brokers say that many people who took out adjustable-rate mortgages three years ago are now seeing their introductory rate -- often in the 3 percent to 4 percent range -- expire and are seeing the interest rates now rise as much as 5 percentage points.

These borrowers could see higher rate increases if the Federal Reserve continues to raise interest rates.

However, the average 30-year mortgage interest rate has risen only from 6.06 percent in July 2004 to 6.69 percent last week, according to the Mortgage Bankers Association. By refinancing now, borrowers with adjustable-rate mortgages are often able to get a lower interest rate -- and monthly payment -- and can prevent their rate from rising further.

A surge to come

Several brokers believe that this recent surge in adjustable-rate mortgage refinancings is only the beginning of the trend.

Like other mortgage brokers, David Macaione, senior vice president with Alpha Mortgage Co. in Winston-Salem, is getting calls from people with adjustable-rate mortgages looking to refinance to a fixed rate. While he agrees that refinancing is likely the best long-term solution, he is advising his clients to wait a few more months.

With 17 straight interest rate hikes from the Federal Reserve and inflation slowing, Macaione says it's likely interest rates will begin to fall again within the next few months. If borrowers with adjustable-rate mortgages can hold on a few more months, it's likely they can refinance at a lower interest rate than is available now, he said.

And, for many borrowers with adjustable-rate mortgages, it is still several months away before their first rate adjustment, said Lester Jones, owner of First Forsyth Mortgage in Winston-Salem.

"Most borrowers won't react until they see that adjustment," he said.

Washington Business Journal - 12:05 PM EDT Thursday

Mortgage rates are still considerably higher than a year ago but have fall for the third straight week.

Freddie Mac's weekly report puts the average 30-year fixed-rate mortgage at 6.55 percent, down from 6.63 percent last week. A year ago, 30-year mortgages averaged 5.89 percent.

One-year adjustable-rate mortgages were unchanged this week, at 5.69 percent, more than 1 percentage point higher than a year ago.

"The weaker than expected jobs report combined with the Fed's decision to pass on raising rates at its last meeting led directly to lower rates this week," says Freddie Mac (NYSE: FRE) chief economist Frank Nothaft. "Interest rates for fixed-rate mortgages have dropped to levels last seen in the spring of this year."

Rates are still high enough to continue putting the brakes on home-buying activity.

The most recent evidence came this week from luxury-home builder Toll Bros. (NYSE: TOL), which cut its forecast for sales this year after saying the value of contracts last quarter fell 45 percent from year-ago levels.

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