mortgage

Mortgage rates dip for 2nd week

Mortgage rates dipped this week as an indirect result of the debt crisis in Greece.

The benchmark 30-year fixed-rate mortgage fell 9 basis points this week, to 5.12 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.47 discount and origination points. One year ago, the mortgage index was 5.27 percent; four weeks ago, it was 5.35 percent.

The benchmark 15-year fixed-rate mortgage fell 5 basis points, to 4.49 percent. The benchmark 5/1 adjustable-rate mortgage fell 6 basis points, to 4.31 percent.

This week's drop happened Tuesday, when American stock prices and bond yields fell as doubts began to grow about a bailout plan for Greece. Some political leaders in the European Union expressed doubt that Greece would slash government spending, a requirement for a bailout. In response, investors moved money to the safety of U.S. Treasuries and, apparently, mortgage-backed securities.

Weekly national mortgage survey
Results of Bankrate.com's May 5, 2010, 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:5.12%4.49%4.31%
Change from last week:-0.09-0.05-0.06
Monthly payment:$897.90$1,261.40$817.51
Change from last week:-$9.15-$4.21-$5.82

Essentially, the movement of money into American bonds meant there was more cash available to lend on this side of the Atlantic, making home loans less expensive.

The Greek debt crisis and the oil calamity in the Gulf of Mexico add to uncertainty, says economist Joel Naroff, principal of Naroff Economic Advisors in Holland, Pa. Eventually, he adds, unexpected events are likely to push interest rates upward. But not this time.

Dick Lepre, senior loan consultant with Residential Pacific Mortgage in San Francisco, worries Americans are getting the opposite of what they need. Instead, we should worry the problems caused by Greece's chronic overspending will be visited upon us someday, Lepre says. He believes the Greek debt crisis should set off alarm bells here -- alarm bells in the form of higher interest rates.

Instead, debt has become temporarily cheaper in the United States because investors worldwide are stashing their cash this safe haven.

"Look at what's happening today," Lepre says. "Because people recognize that there's contagion in the euro sector -- Greece and Italy and Ireland and Portugal and Spain are all in a similar problem -- it's making Treasury yields here lower, which decreases the cost of borrowing and defers the time which we'll actually start to address the problem here."

That's one way of looking at it. Another way is to accept the crisis in the eurozone as a gift, and to lock a mortgage loan at a low interest rate. Economists believe it is a certainty that rates will rise in the medium and long runs.

The Mortgage Bankers Association's latest forecast predicts that 30-year fixed mortgage rates will rise slowly and steadily, and average 5.8 percent during the final three months of this year. That's an increase of more than half a percentage point.

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