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Mortgage rates drop just as loan applications pick up

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Mortgage rates fell this week, and the timing was excellent. After the big game is over, people start thinking of buying houses.

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"It's always picked up right after the Super Bowl," says Brian Koss, executive vice president of Mortgage Network, in Danvers, Massachusetts.

He says people get cabin fever, and they vow to start looking at houses as soon as the NFL season concludes. That's when they start making mortgage inquiries, too.

This seems to be the case even outside New England. David Kuiper, vice president of Northpointe Bank in western Michigan, says his bank has been getting more mortgage-related calls this week. According to the Mortgage Bankers Association, loan applications went up last week, too.

Lock or float?

With more people applying for mortgages, it's a nice time for interest rates to drop.

"We're seeing a little improvement," Kuiper says. "It's not enough each day to make up an eighth of a point in interest rate, but it's headed in the right direction."

After you apply for a mortgage, the question quickly arises: Lock or float? When you lock an interest rate, that's the rate you'll get if you close on time, regardless of whether rates go up or down in the meantime. When you float, it means you are waiting to lock the rate later. Thus you take a gamble. If rates go down, you can eventually lock at that lower rate. But if rates go up, you might get stuck with a higher rate.

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"If someone is fairly steady and risk tolerant, it doesn't hurt to float," Kuiper says. "But most of my clients tend to lock in when they apply. They like the certainty. People are more afraid of loss than of potential gain. Is it worth staying up at night wondering if you should have locked? I don't think it is."

Mortgage rates this week

The benchmark 30-year fixed-rate mortgage fell this week to 4.27 percent from 4.33 percent, according to Bankrate's weekly survey of large lenders. A year ago, it was 3.78 percent. Four weeks ago, the rate was 4.2 percent. The 30-year fixed mortgages in this week's survey had an average total of 0.26 discount and origination points.

Over the past 52 weeks, the 30-year fixed has averaged 3.82 percent. This week's rate is 0.45 percentage points higher than the 52-week average.

  • The benchmark 15-year fixed-rate mortgage fell to 3.49 percent from 3.53 percent.
  • The benchmark 5/1 adjustable-rate mortgage fell to 3.46 percent from 3.49 percent.
  • The benchmark 30-year fixed-rate jumbo mortgage fell to 4.27 percent from 4.31 percent.

Weekly national mortgage survey

Results of Bankrate.com's Feb. 8, 2017, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:

30-year fixed15-year fixed5-year ARM
This week's rate:4.27%3.49%3.46%
Change from last week:-0.06-0.04-0.03
Monthly payment:$813.63$1,178.75$737.24
Change from last week:-$5.82-$3.24-$2.76

Incomes rise slowly

The decline in interest rates seems to have several causes. There is political uncertainty in France. The Federal Reserve doesn't seem to be in a hurry to increase short-term interest rates. The White House and Congress aren't making much progress in passing a stimulus program.

Maybe most important, wages are rising slowly. Average weekly wages went up 1.9 percent in the 12 months ending in January, according to last month's employment report. There is little inflationary pressure coming from workers' wages. With low inflation expectations, there's little reason for interest rates to rise.

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