Fed Offers Second Chance To Refinance Or Buy Consumers Get Another Shot A Mortgages With Rate Decrease And A Rally In The U.S. Bond Market

U.S. consumers are getting some of the best opportunities in two years to buy a home or refinance their mortgages, thanks to the Federal Reserve and rally in the U.S. bond market.

Bonds rallied Thursday after the Federal Reserve signaled it would lower rates on overnight bank loans now that inflation is subdued and the economy is flagging.

The Fed’s move and the drop in bond yields give all those consumers who missed the rock-bottom mortgage rates of 1993 a second chance to refinance or buy a home, say lenders.

“We have a market that’s a good deal” for home buyers, said Pat Casey, a senior vice president at Crestar Mortgage in Washington, D.C. “Who ever dreamed you’d get a second chance?”

Home buyers won’t have to wait long before they see lower bond yields translated into lower mortgage rates.

The effects will be felt almost immediately since many lenders reset their rates daily, based on changes in the price of mortgage-backed securities and Treasuries, said Terry Hodel, president of North American Mortgage Co. in Santa Rosa, California.

Home buyers can get an idea of where mortgage rates are headed by checking the newspaper for the yield of the 10-year Treasury note, a benchmark for mortgage rates.

The yield of the 10-year Treasury fell to 6.03 percent from 6.18 percent today.

Thirty-year mortgage rates averaged 7.63 this week, down from 7.85 percent a month ago and 9.25 percent in mid-December, according to the Federal Home Loan Mortgage Corp.

The drop comes just in time for the traditional summer home-buying season, when a combination of good weather and vacations prompt consumers to shop for a mortgage. Another bit of good news for buyers is that U.S. homes don’t cost much more than they did last year.

Prices were up just 2.6 percent in the year ended March 31. That rise didn’t even keep pace with consumer prices, which rose 2.9 percent.

The Fed’s decision to lower rates also may pave the way to even lower mortgage rates in the next few months, say some lenders.

“Usually when the Fed starts lowering or raising rates they do it in steps,” said Hodel. “This is a step in the right direction.”

The best news may be for those planning to buy a home, since many Americans already are holding low-rate loans they took out in 1993, say lenders.

“This move won’t do much for people who want to refinance,” said Barry Habib, president of Certified Mortgage Associates in Marlborough, New Jersey. However, “for people who want to buy we have a good market.”

Crestar Mortgage’s Casey said some of the best bargains may be in new homes, since some builders have a surplus of homes they’re trying to unload.

And while many consumers are taking out fixed-rate loans this year, adjustable-rate loans may also work out for some consumers, say lenders.

A so-called 10/1 ARM, for example, has a 6.75 percent fixed rate for 10 years and an adjustable rate after that, said Habib at Certified. For a $100,000 loan, a consumer could save about $40 a month by taking out the ARM, he said.

One final bit of advice, say some lenders, is not to fret too much if rates rise later this year. Even if they do, you may get yet another chance to refinance in the next few years.

“People always say rates have bottomed and are going up,” said Casey at Crestar Mortgage. “They said it in 1986, in 1992 and 1993, and they’re saying it again now.”

After last year’s jump in mortgage rates, this year provides proof that what goes up eventually comes down, too, he said.