RATES FALL FURTHER:
  30-YEAR FIXED 15-YEAR FIXED 1-YEAR ARM
This week’s rate: 5.71% 5.17% 4.44%
Change from last week: -0.05% -0.04% N/C
Monthly payment: $958.71 $1,319.47 $830.16
Change from last week: -$5.23 -$3.46 N/C

The rates on long-term mortgages have fallen for the third week in a row, even as the one-year adjustable was unchanged.

The benchmark 30-year fixed-rate mortgage fell 5 basis points to 5.71 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 0.32 discount and origination points. One year ago, the mortgage index was 5.67 percent.

The benchmark 15-year fixed-rate mortgage fell 4 basis points to 5.17 percent. The benchmark one-year adjustable-rate mortgage remained 4.44 percent.

Economists expect rates across the board to climb. They’re not sure why long-term rates have been going down instead of up.

“It’s surprising that with oil back at $50 a barrel, the weak dollar and growth above trend, mortgage rates are around 5 3/4 percent,” says David Berson, chief economist for the National Association of Home Builders. He offers two theories: Either financial markets are predicting much slower economic growth than the economists are predicting, or financial markets believe the Federal Reserve will continue to keep inflation well under control.

Since late June, the Fed has raised short-term rates five times by a quarter-point each time. The prime rate has gone from 4 percent to 5.25 percent. Yet rates on one-year adjustable-rate mortgages fell until autumn, when they began marching upward gradually. Long-term rates haven’t seen such a turnaround. Yet. Economists are confident that long-term rates will rise this year.

Mortgage bankers think they’ll go up, too. “I like people who are locking in,” says Bob Moulton, president of Americana Mortgage, a brokerage in New York. He adds jovially (not in a tone of doom): “I’m just waiting for the house of cards to fall.”

In other words, he believes it’s just a matter of time before long-term rates rise. “I don’t think a borrower has much to lose by locking at application,” he says.

Moulton was in the business when rates took a big jump at the beginning of 1994. The average rate on a 30-year mortgage was around 7 percent in January and the first half of February of that year. Then rates took off, hitting 8.29 percent in early April and 8.65 percent in mid-May.

“People were caught off-guard,” Moulton says. “Now, being older and wiser, I try to lock them in at application because rates can spike up.”

In a lot of markets, the fate of 15- and 30-year fixed mortgages doesn’t matter a whole lot because so many borrowers take out adjustable-rate mortgages, or ARMs. That’s the case in Moulton’s territory. Traditional one-year ARMs are almost extinct, he says, and many borrowers are choosing hybrids such as the 5/1 ARM. That loan has an initial rate that lasts five years, and the rate adjusts annually thereafter.

Quite a few of Moulton’s customers got 3/1 ARMs three years ago, thinking they would move relatively soon. Now their rates are about to enter their adjustment periods, and these borrowers are refinancing into new 3/1 or 5/1 ARMs.

Those people are choosing ARMs over 30-year fixed-rate mortgages because they believe that they’ll move within five years or so, and they can save a lot of money in the meantime. Moulton says he can offer a 5/1 ARM about 1 percentage point lower than for a comparable 30-year fixed.

The difference is narrower in Freddie Mac’s weekly mortgage rate survey, where the 5/1 ARM generally is about three-quarters of a percentage point lower than the average 30-year rate. In February, Bankrate.com will replace one-year ARMs with 5/1 ARMs in its weekly national survey of mortgage rates.