With all the talk recently about bankruptcies on Wall Street and a credit crunch that’s crippling banks, the latest financial news may be a bit surprising: Getting a new mortgage may be cheaper now than it’s been in months. The average interest rate on a 30-year fixed-rate loan dropped to 5.93 percent last week, according to Freddie Mac, down almost half a point from the two previous weeks.
For a house valued at $200,000, that means a monthly payment of $1,190, which is $54 per month less than the average buyer from the week before will pay. News of the interest rate drop has reportedly sparked a minor buying spree.
"That six percent level is kind of a psychological break point," Keith Gumbinger, a vice president at HSH Associates, a publisher of mortgage and consumer loan information, told the Washington Post.
"Consumers see a five in front of mortgages, and they get excited."
Not so fast, though. The renewed consumer interest in mortgages may not do much to help sagging real estate sales, since many of the people inquiring for new loans are looking to refinance homes they already own. Even with the lowest mortgage rates in five months, consumers still must avoid taking on more debt than they can afford. And in an era of falling home prices, people with existing mortgages may be disappointed, since few banks will refinance a loan on a house that has fallen in value. Larry Pratt, chief executive of First Savings Mortgage in McLean, Virginia, told the Post that one of the bank’s loan officers recently turned away 72 of the 75 customers who came in looking to refinance.
"Some borrowers are going to be very frustrated," Pratt said.
As if they aren’t already.
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I’m totally agreed with you, people are disappointed with existing mortgage although the rates were dropped recently.