Declining mortgage rates lure would-be homebuyers

If you've been thinking about buying a house or refinancing your mortgage, now might be the time.

Thirty-year fixed-rate mortgages are now available in Fargo-Moorhead for less than 5 percent, local bankers say.

"If you'd said a year ago that rates would be this low today, nobody would have believed you," said Bill Russell, senior vice president/market manager for Fargo-based State Bank & Trust.

Nationwide, mortgage rates have dropped half a percentage point since this summer and are near their lowest levels in four years.

Rates also were low early this year before rebounding over the summer.

Why have rates fallen recently?

One reason is that the Federal Reserve, the nation's central bank, announced Tuesday that the fed funds rate, or the rate which banks charge each other for overnight loans, is being reduced from 1 percent to 0.25 percent.

That's the lowest in history.

The decrease in the fed funds rate was anticipated and was factored into current mortgage rates, Russell said.

More significantly, the Federal Reserve announced late last month that it wanted to drive down mortgage rates by buying billions of dollars of mortgage-backed securities.

Rates dropped sharply after the announcement.

Many factors, including inflation and investor demand for mortgage-backed securities, influence mortgage rates.

Area residents were beginning to notice lower rates even before Tuesday, metro housing officials say.

"The lower rates are getting some people (potential buyers) off the fence," said Scott Breidenbach, with Fargo's Park Co. Realtors and president of the Fargo-Moorhead Area Association of Realtors.

Local interest in refinancing mortgages also has picked up this month, said Peggy Palmes of TRN Abstract and Title, which has offices in Fargo and Moorhead.

There's no easy answer about when to refinance, housing officials say.

One rule of thumb is that rates need to fall by 1½ percentage points to justify refinancing.

Another rule of thumb is that refinancing makes economic sense if you plan to stay in the home and can recover the cost of refinancing within 12 to 36 months.

Before Tuesday's fed funds rate cut, the national average for a 30-fixed rate mortgage was about 5.5 percent, according to the Web site of Bankrate.com, which tracks mortgage rates.

On a $150,000 fixed-rate loan at 5.5 percent, the monthly payment is $851.68, $96.42 less per month and $1,157.04 less per year than at the 6.5 percent rate on the same loan this summer.

"The difference can really add up over a year," said Dave Branson, sales manager of Edina Realty in Fargo.

Mortgages typically are available in Fargo-Moorhead for less than the national average, said Blaise Johnson, director of lending for Fargo-based Gate City Federal.

Calculating average mortgage rates can be tricky since many factors, including fees, are involved, bankers say.

The metro economy and housing market have remained healthy, unlike what's happening nationally, local housing officials say.

Still, 2008 home sales will come up a little short of what they did in 2007, a strong year, Breidenbach said.

But lower rates will help attract buyers, he said.