Mortgage rates inch downward

Mortgage rates inched downward this week, landing at 5.4 percent.

The benchmark 30-year fixed-rate mortgage declined 1 basis point to 5.4 percent, according to the 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 0.34 discount and origination points. One year ago, the mortgage index was 6.15 percent; four weeks ago, it was 5.67 percent.

The benchmark 15-year fixed-rate mortgage rose 1 basis point to 4.75 percent. The benchmark 5/1 adjustable-rate mortgage declined 5 basis points to 4.89 percent.

Weekly national mortgage survey
Results of's Sept. 9, 2009, 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:5.4%4.75%4.89%
Change from last week:-0.01+0.01-0.05
Monthly payment:$926.53$1,283.42$874.70
Change from last week:-$1.03+$0.85-$5.02

Right around the time school ended for summer, the 30-year fixed rose above 5.5 percent and stayed there. As the school year begins, rates have gone back down. No one is saying there's a connection between school and mortgage rates, but the coincidence is notable.

Anyway, the 30-year fixed dipped last week to 5.41 percent. That was the first time it had been below 5.5 percent since the end of May, and there was a surge in mortgage applications. With this week's slight decline, the average rate is 5.4 percent -- and that means you'll probably have company if you apply for a home loan this week.

Much of the increase in loan applications came from homeowners who want to refinance. But there was a sizable jump in homebuyers, too.

That points to a combination of motivations, says David Kuiper, loan officer for First Place Bank in Holland, Mich. "We picked up quite a bit of refinancing applications last week," he says. "And I do think the tax credit expiration is pushing people off the fence."

First-timers jumping in

Uncle Sam is giving first-time homebuyers a federal income tax credit of 10 percent of a home's purchase price, up to $8,000. The tax credit has an expiration date: Nov. 30. The purchase has to close on or before that date for the purchaser to qualify for the tax credit.

(A lot of writers have written that the transaction has to occur "by Dec. 1," but first-timers who close on their home purchases Dec. 1 will discover that they're a day late and $8,000 short unless Congress extends the deadline.)

The Nov. 30 deadline has a pitfall. That date is the Monday after Thanksgiving. Few home purchase transactions are going to close over the long Thanksgiving weekend, or even on the eve of Thanksgiving. So, realistically, buyers should try to close by Tuesday, Nov. 24. And if they want to make that deadline, they need to act soon. Waiting another couple of weeks might be OK. Now is better.

Folks seem to be getting the message. Kuiper says that in the last two months, about 80 percent of his purchase customers have been first-timers who aim to collect the tax credit. "My next client that's coming in here in a few minutes, says, 'I've got to get in and buy a house before this tax break expires,'" Kuiper says. "And believe me, there are a lot of places to choose from."

Houses are relatively inexpensive in western Michigan. Kuiper says the average loan size is about $125,000, and he is doing plenty of loans of less than $100,000. Last month he closed a mortgage for $27,000.

Over in the San Francisco Bay area, where houses are much more expensive, the first-time homebuyer tax credit isn't as big a deal, says Dick Lepre, senior loan consultant for Residential Pacific Mortgage. Prospective buyers are more concerned about home values and whether they have bottomed out.

"I think there's a general feeling that maybe we're at or near the bottom," Lepre says. And there's another big issue: the availability of jumbo mortgages. Most jumbos in the Bay Area are underwritten by Union Bank, and there's just not much competition, Lepre says.


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