Saturday, March 26, 2005

Rising mortgage rates don't deter applicants

FINANCE:Although rates continue to rise, lenders say they are low by historical standards.


Rates on 30-year mortgages this week climbed to their highest point since late July, rising just above the 6 percent mark nationally, but local lenders say they haven't seen any drop in applications due to the increase.

Locally, rates on fixed-rate 30-year home mortgages followed suit. Fifteen-year fixed-rate mortgages hovered around 5.5 percent.

Rates are expected to continue to rise this year, but lenders say that compared with historical figures, they're low now.

"I've been in this businesses for 20 years, and 25 of those years the rates have been worse than they are right now," said Joe Johnson, vice president of North Shore Bank of Commerce.

Still, the owner of a home with a $100,000 mortgage at a fixed 5.75 percent interest rate for 30 years -- the rate that First Minnesota Mortgage offered on Friday -- would pay about $33,000 more in interest than one financed at the 4.25 percent 30-year fixed rate offered two years ago, Vice President Julie Vuicich said.

The rates have affected refinancing. In the Duluth area, refinancing was 50 percent of his business six months ago, Johnson said. Now it's about 35 percent. Other lenders also said refinancing has fallen off.

However, mortgage applications for home purchases are steady to increasing in the Duluth area because the home-selling season is beginning, Johnson said. Many of those who are buying, however, are looking at ways to save money as interest rates rise.

Although the vast majority of customers at National Bank of Commerce take fixed-rate mortgages, about one-quarter of them are considering adjustable-rate mortgages, which carry lower rates that can change up or down, said Tim Smith, vice president and manager of mortgage services. When rates were lower, only 1 to 2 percent considered them, he said.

Johnson said he has seen more customers locking in rates rather than letting them float until closing.

This week's nationwide average rate was up from 5.95 percent the previous week and was the highest since the week ending July 27, when rates averaged 6.08 percent. It marked the sixth week in a row that rates rose on 30-year mortgages.

A year ago, 30-year mortgages averaged 5.40 percent and 15-year mortgages were at 4.70 percent.

The Mortgage Bankers Association is predicting interest rates will rise to 6.9 percent in 2006.


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