August 15, 1997

Don't expect mortgage rates to move much

By TOM KELLY
The Real Estate Advisor

If you are concerned that home-loan rates will pop upward before the kids are in school in September or ruin your idea to refinance this summer, slow down and take a few extra days in the sun.

Interest rates on home loans will stay at their present 7 percent range and could dip lower in the next six months, according to Kerry Killinger, the president, chief executive officer and chairman of Washington Mutual Bank.

"We see no pressure -- one way or the other -- for long-term rates," said Killinger, the man who now heads the third largest banking operation in the country. "We expect a relatively dormant position in the next couple of years with a movement of no more than mid-7 to mid-6 ranges. We see no real reason for huge swings."

If you are buying, shop for the house and and not an interest rate. If you lose your dream home over half a percentage point, you may never forgive yourself.

If you are thinking of refinancing, it's usually impossible to hit the all-time low because you don't know that mark until rates rise. The last big valley was the third week of October 1993, when the national rate for 30-year fixed rate loans were 6 5/8 percent.

There's a chance we may get there again, but most of us will miss it no matter how hard we try. Take a good rate that's comfortable for you and move on. And, the rates in Western Washington last week -- even though they ticked up a bit from the previous week -- were, historically, very affordable. According to Freddie Mac, one of the nation's top purchasers of mortgage loans, thirty-year fixed-rate money averaged 7.46 percent and 15-year mortgages 7.0 percent - both nearly half a percentage point lower than a year ago.

Here are some mortgage tips for the veteran and the newcomer.

If you haven't borrowed money for a home in several years, what was "taboo" in the home-loan game can sometimes now be labeled "optional."

• How long will you remain in the home? This is far and away the first question to ask yourself before you borrow. Obviously, it's impossible to predict your future, but take your best guess at longevity factor. Remember, shorter term means less risk, and thus, a lower interest rate. If you expect to sell within three to five years, a fixed-rate loan may not be the wisest choice. Most adjustable-rate mortgages may be assumed by the new buyer, while fixed-rate loans cannot. Loan analysts foresee no real reason for huge interest-rate swings in the near future.

• Do I qualify for other loan programs? If you can't be with the one you want, love the one you're with -- or in this case, can get. Your loan officer is supposed to tell you which programs you qualify for and offer to take your application. You may qualify for special low-down-payment programs and may not know it. Allowable median incomes in specific regions have been inching up. When in doubt, don't leave it out of your "to ask" list.

• Is there a prepayment penalty? After years of this being a non-issue, the practice has surfaced again because of the number of loans refinanced - twice - in the past 24 months. Some lenders now are charging fees for prepaying within the first few years of the loan, especially on "no up-front cost" loans. Very few are assessing a charge for small prepayment amounts (less than 10 percent of the remaining balance) in any given year.

• Does it matter where loan payments are made? Loans can be sold or the servicing rights to the loan can be sold. Because a majority of fixed-rate loans are sold to long-term investors, expect at least one change in address to where you mail your monthly payment. New laws require your lender to notify you well in advance of any change in payment location.

• What about late charges? Find out how many days' grace period is allowed. For example, some lenders give you until the 15th of each month to pay your mortgage. (That's received by the 15th -- not postmarked by the 15th.)

  However, some lenders have shortened the grace period to 10 days. Late charges typically are a percentage of the overdue payment of principal and interest. Be careful that you are not charged a late fee on your full combined payment of principal, interest, taxes and insurance.

• When can I cancel mortgage insurance? As mentioned, most loans are sold to investors. The benefit of this in regard to mortgage insurance is that these investors (secondary market) have specific guidelines about dropping mortgage insurance. If your loan is not being sold, but rather kept in "portfolio," ask the lender for mortgage-insurance specifics in writing. FHA mortgage insurance is required until the loan is repaid (not to be confused with assumed).

• How will my payments be applied? Ask to see your loan documents. The Note or Deed of Trust should contain a formula that applies to your monthly installment payments. This formula tells you how the lender will use your money to repay the debt. When checking your loan options, don't be afraid to ask the same question twice. Ask your loan officer to "explain that in a different way" if you find yourself confused or clueless. Loans may be mandatory for most consumers but rarely are easy to understand.

Even though interest rates should remain flat and calm through the 1990s, Washington Mutual probably will not. Killinger, who recently engineered Wamu's acquistion of Great Western Bank which gave the Seattle-based operation 1,200 offices in 38 states, did not rule out additional acquistions in the near future, including the possibility of taking over H.F. Ahmanson, Wamu's competitor for Great Western.

That does not come as a huge surprise. Wamu has made 22 bank buys since 1983 and has increased its lead over the competition in mortgage lending in all Northwest states. It has quietly become the leading lender in Utah and has increased and could soon approach that title in California.

I wonder what the Rodeo Grandmas would say about that?

Previous columns:

• How wired will real estate get?, 08-08-1997
• Taking a look at The Street of Dreams, 08-01-1997
• What to do about that vacation home, 07-25-1997
• Vacation homes and taxes can be a confusing combination, 07-11-1997
• Capital gains change is hot housing topic, 06-27-1997
• More lenders willing to take a big gamble on home loans, 06-20-1997
• Look gift houses in the mouth, 06-13-1997
• Affordability not just problem for first-time buyers, 06-06-1997