Despite a recent rise to above 4 percent, mortgage rates remain historically low. So if you need a mortgage, lock in the best rate you can get, and don't worry about having missed out on the lowest-ever rates.
"A good, normal, 30-year fixed rate is 5 percent, but nobody wants to hear that when they've seen 3.5 percent," says Guy Cecala, publisher of Inside Mortgage Finance.
Plus, home values in most places haven't returned to the housing market's peak in 2006. Freddie Mac said recently that mortgage rates would have to rise to nearly 7 percent before the median-priced home in the U.S. would be unaffordable to a family making the median income in most parts of the country.
Among your alternatives: You can choose a less expensive home or increase your down payment to reduce the size of your loan. You can pay more points (one point equals 1 percent of the loan amount) to buy down your rate with prepaid interest. Or you can take out an adjustable-rate mortgage with a lower starting interest rate.
Adjustable-rate mortgages earned a bad reputation during the housing bust because of risky features - super-low teaser rates and super-high rate adjustments - that no longer exist. Today, a hybrid ARM is a safer choice.
Choose one with an initial fixed-rate period that matches how long you expect to remain in the home or keep the mortgage. Recently, the average rate nationally was 3.36 percent for a 5/1 ARM that adjusts annually after five years.
Many credit unions offer a 5/5 ARM. The starting interest rate remains the same for five years, then adjusts every five years thereafter. At Navy Federal, for example, the initial interest rate on its 5/5 ARM in early July was 2.375 percent. In five years it could adjust to 4.375 percent.
To help relieve rate anxiety, you can lock in your mortgage rate until you close. The longer the lock-in period (typically 30, 45, 60 or 90 days), the greater the cost - generally an eighth of a percentage point for every 15 days beyond an initial 30 days.
Patricia Mertz Esswein is an associate editor at Kiplinger's Personal Finance magazine. Send her a question or comment at
moneypower@kiplinger.com. For more on this and similar money topics, go to
tulsaworld.com/kiplinger.
Original Print Headline: Mortgage rates still relatively low
Money Power
As a group, the seven bond mutual funds in the Kiplinger 25 fared slightly better, but still suffered an average loss of 3.1 percent.
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