Mortgage rates are a point lower than last fall and close to spring's record lows By Mike Sante 09-23-2009

Mortgage rates are a point lower than last fall and close to spring's record lows
By Mike Sante, Interest.com
September 23, 2009

Mortgage rates are a point lower than last fall and close to spring's record lows
Mortgage rates have settled into a groove that makes buying or refinancing a home more affordable than it was last September.

The average rate for a 30-year, fixed-rate loan -- the most popular way to finance a home -- slipped to 5.36% in our latest weekly survey of major lenders taken Sept. 23.

That's less than a quarter-point higher than in April when the average reached 5.13% -- the lowest it's been since Interest.com and its print predecessor began the survey in 1985.

It's also a full point lower than those loans cost last autumn. And the autumn before that. And the autumn before that.

By any historical standard, anytime you can get a 30-year, fixed-rate loan for less than 6.5%, you've gotten a good deal.

If you compare mortgage rates in our extensive database, you'll find lenders offering 30-year, fixed-rate loans for as little as 4.875%, with no points and fees of $1,500 or less, in many markets.

Indeed, the big problem is that and banks are taking months to process applications.

There's been a surge in the number of refinancings and they don't have enough trained loan officers -- especially since they're looking at each loan more closely and demanding more documentation of income and assets.

There's no reason to think mortgage rates will reverse field and shoot up later this fall.

The Federal Reserve decided on Wednesday to continue buying billions of dollars' worth of home loans made by commercial banks and mortgage companies through March.

That's what drove rates down earlier this year.

Then the Treasury Department started borrowing the staggering amounts of money needed to finance the record federal budget deficit, which is projected to reach $1.84 trillion this fiscal year -- four times more than last year's record $454.8 billion deficit.

That pushed the cost of long-term debt, including mortgages, up a bit, but not nearly as much as some had feared.

Indeed, many borrowers can still qualify for rates below 5% by paying a point or two on their loan.

Paying points allows borrowers to obtain a lower interest rate than the lender normally offers, with one point equaling 1% of the loan amount. It's worth considering if you're going to live in the house long enough to recoup the extra up-front costs.

Two points will allow you to buy the rate as low as 4.5% in some markets.

We have a calculator that compares loans with and without points, so you can pick the one that's right for you.

Another way to get a 4% mortgage is to take out a shorter loan.

That won't get you the lowest possible monthly payment, but there are lenders offering 15-year mortgages for 4.50% with no points.

We also have a calculator that will let you compare all the costs and savings of 15-year and 30-year mortgages.

You've also probably heard that banks and mortgage companies have tightened their requirements for getting a mortgage after unwisely lowering their standards during the housing boom.

They have. But that return to reasonable underwriting standards doesn't mean you can't get a mortgage.

You'll have the best chance of getting a low rate with low fees if you:

Have a reasonable credit score. Anything above 720 should work, although fees are rising even for people who have scores as high as 739. Here's where to find out what goes into your credit score and how to get your credit score.

Poor credit is another good reason to pursue an FHA or VA loan. They'll accept borrowers with lower credit scores and more debt.

Earn enough money to repay the loan. Here's where to learn about the two affordability tests most lenders use.

Be able to fully document your income, assets and debts. Here's where to find out about questions you'll be asked on a mortgage application and all the paperwork you'll need.