Best mortgage moves to make

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Here’s how the Fed’s latest announcement will affect mortgage rates.

Fixed-rate mortgages:
Rates have risen slightly since the Fed last met Sept. 24. The rise in mortgage rates had little to do with the Fed and mostly to do with the strong refinancing boom, which increased demand for loans and increased interest-rate risk to investors who ultimately buy mortgage debt. In’s weekly index of mortgage rates offered by large lenders, the average 30-year rate was 6.18 percent on Nov. 6, up from 6.03 percent on Sept. 25. At the beginning of this year, the 30-year rate was 7.18 percent.

Long-term mortgage rates do not follow changes in the federal funds rate (the rate that the Federal Reserve Board manipulates). Instead, mortgage rates move roughly with long-term Treasury bond yields, which have risen a little less than half a percentage point since the last Fed meeting.

Over the past few weeks, bond yields have risen along with stock prices. Although stocks are up, the overall economy seems to have pulled a hamstring in the last couple of months, with rising unemployment, a faster pace of layoffs, decreasing consumer confidence and weakening factory output.

The Fed’s cut in short-term rates is unlikely to spur a big increase in business investment and hiring. It might provide a psychological boost to investors and consumers.

Best move now:
Mortgage rates are near their lowest levels in 40 years. That’s reason enough to get a mortgage now, whether you’re buying your first house or refinancing your home loan. Remember that long-term mortgage rates don’t necessarily follow movements in short-term rates — and that the Fed’s rate cut is designed to stimulate the economy. As the economy gets better, mortgage rates will rise.

Use the
mortgage rate search to locate the best deal.

The 30-year fixed-rate mortgage averaged 6.18 percent on Nov. 6 in the national weekly survey. The 15-year fixed-rate mortgage averaged 5.59 percent.

Adjustable-rate mortgages:
ARM rates tend to follow changes in short-term rates, such as the yields on short-term Treasury bills and notes, which track the federal funds rate closely. ARM rates likely will drop in the coming days and weeks. Eventually — maybe early next year — the Fed will raise short-term rates and ARMs will follow.

Best move now:
Someone who plans to live in a house for only a couple of years might want to consider a short-term ARM because rates are so low. One-year ARMs averaged 4.45 percent Oct. 30 in the national weekly survey, and they probably will head lower.
Search for the best ARM rates in your area.

Keep in mind that fixed rates are low by historical standards. Borrowers with a longer-term horizon should lock in a low rate for 15 or 30 years.

— Posted: Nov. 6, 2002