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Mortgage rates paused in their upward
path this week.
The benchmark 30-year fixed-rate mortgage remained
unchanged at 5.87 percent, according to the Bankrate.com national
survey of large lenders. The mortgages in this week's survey
had an average total of 0.32 discount and origination points.
One year ago, the mortgage index was 5.44 percent.
The 15-year fixed-rate mortgage remained 5.41
percent. The one-year adjustable-rate mortgage stayed at 4.51
percent. Only the 5/1 hybrid ARM changed; it rose 5 basis
points to 5.30 percent. A basis point is one-hundredth of
1 percentage point.
Even as Bankrate.com was conducting this week's
survey, the stage was being set for a rate increase in upcoming
days: An index of commodity prices (including oil) rose to
its highest level in 24 years, the U.S. Treasury put $24 billion
worth of five- and 10-year Treasury notes up for auction,
and an official of the European Central Bank hinted that it
might raise its equivalent to the Federal Reserve's federal
funds rate.
Even with this week's breather, the 30-year
fixed and the 5/1 ARM both have risen by more than a quarter
of a percentage point in the last month. Buyers are eyeing
these gains and wondering if they should lock their rates.
Anxiety accompanies the question because a
rate lock is a gamble with a lot of money at stake. Borrowers
worry that if they lock now, while rates are rising, they
might lock at the top of the cycle. No one wants to commit
to paying a certain rate, only to watch rates retreat.
The situation is even more complicated for people
whose closing dates are more than a month away. Many lenders
allow borrowers to lock the rate within 30 days of closing
without paying a fee. But most lenders charge a fee to borrowers
who want to lock more than a month before closing. The longer
the lock period, the higher the fee.
One Bankrate reader, whose townhouse won't
be ready for occupancy for another six months, summed up rate-lock
anxiety thusly: "Are the rates going to keep climbing
till September? If they are, then is it a good decision to
lock the rates right now? Or is it better to wait till September
and shop for good rates at that stage?"
The answers to those questions are: No one
knows, probably, and maybe.
Most housing economists predict that rates
will be higher at the end of 2005 than they were at the beginning
of the year. In the meantime, rates will have their ups
and downs. But the consensus is that the average rate
on a 30-year fixed will end the year somewhere between 6.25
percent and 6.75 percent after starting this year at 5.81
percent.
At the beginning of 2004, housing economists
made similar predictions of a moderate increase in mortgage
rates. But the average 30-year started 2004 at 5.87 percent
and ended the year at 5.83 percent. Rates actually dropped,
albeit imperceptibly. In the middle of the year, though, there
was an eight-week period when the average 30-year hovered
above 6.3 percent.
If he heeds the economists who are betting that
rates will rise this year, this reader's rate-lock decision
is fairly straightforward: It's a good idea to lock the rate
now, as long as the fee doesn't seem exorbitant.
What about the shorter term -- someone who
expects to close between 30 and 90 days from now? Should such
a person lock now, especially if that means paying a fee?
There's no sure answer to that question. Here's a way to resolve
it: Set a rate tripwire -- a maximum percentage rate that
you want to pay. Keep an eye on the rate for the loan you
want, and if it rises to or beyond your tripwire level, go
ahead and lock it and don't look back.
By setting a rate tripwire, you psychologically
prepare yourself to pay a rate that's higher than what you
would pay right now, so you won't be so disappointed. And,
of course, you might decide that today's rate is the tripwire.
In that case, you lock now.
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