Anemic job growth keeps mortgage rates down

Mortgage rates have reacted predictably to Friday's way-softer-than-expected employment report: They fell, according to Bankrate.com's weekly survey of large lenders.

The news keeps the mortgage market in good shape for borrowers, at least for now. It shouldn't be presumed that rates will continue to stay so low. The economy may not be a runaway locomotive, but job growth on a month-to-month basis remains fairly strong, according to economists, and the unemployment rate continues to decline. That said, let's look at the highlights of this week's survey.

The benchmark 30-year fixed-rate mortgage fell 4 basis points to 5.61 percent. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.32 discount and origination points. One year ago, the 30-year fixed rate stood at 6.36 percent.

The 15-year fixed-rate mortgage fell 2 basis points to 5.24 percent. The five-year adjustable-rate mortgage fell 1 basis point to 5.14 percent.

Flat yield curve: A mortgage hunter's friend
It can be tedious focusing on the economy and wondering how the heck it's going to mess with your financial needs and dreams in the months or years ahead, but for here and now, the flattening yield curve provides a couple of money-saving scenarios for homeowners. A flat yield curve is one in which there's less than the usual difference between short-term interest rates and long-term rates.

Dallas Federal Reserve Bank President Richard Fisher caused a wave of speculation last week when he opined that the Fed may be getting ready to take a breather this summer from hiking interest rates -- assuming inflation doesn't spike.

Charles Lieberman, economist and chief investment officer with Advisors Capital Management in Paramus, N.J., isn't in Fisher's camp. He says the economy is humming along and there's no reason for the Fed to pause.

"People are running around like Chicken Little suggesting that the economy is going over a cliff. That's an egregious exaggeration. I don't expect a break in fed rate hikes after June. I think the Fed will hike beyond June and that by the end of the year we'll be close to (a federal funds rate of) 4 percent."

If Lieberman's forecast proves to be accurate and short-term rates continue to rise -- and if long-term rates stay low -- many people with home equity lines of credit, also known as HELOCs, could save a nice sum by refinancing, says Barry Habib, CEO of Mortgage Market Guide.

Got a HELOC and a mortgage? Refi
"If the fed funds rate is at 3 percent and goes up another 25 to 50 basis points, that pushes the prime rate to 6.5 percent and the average HELOC to 7.5 percent.

"Suppose you have a $150,000 first mortgage and another $75,000 in a HELOC. If you refinance both into one at $225,000, you may not save a lot on the first mortgage, but on the HELOC you'd go from 7 percent or 7.5 percent to 5 percent or 5.5 percent and save 2 percent on the HELOC. On $75,000, that's (a savings of) $1,500 a year," says Habib.

"A lot of Americans are in the large HELOC situation," he adds. "They were very popular when the fed funds rate stood at 1 percent and the prime was 4 percent and HELOCs at 5 percent. Now they're staring at 7 to 7.5 percent by the end of the year. It's a lovely opportunity to jump in and save money."

Habib says that many people with adjustable-rate mortgages are also looking at considerable adjustment increases and may be able to circumvent that by locking in a lower fixed rate.

Even if you don't have a HELOC or an ARM, a great many people who have mortgages should consider refinancing.

"Even if they refinanced a few years ago," says Lieberman, "it's very likely that they can do better now. Evaluate the whole menu of options that are out there."

It may be tempting to sit on the fence and see if rates drop further, but it may not be wise. As Habib puts it, "Greed kills sometimes."