Homeowners make dash for low interest rates

MIAMI – Dec. 19, 2008 – Homeowners in South Florida and across the nation rushed to contact their mortgage brokers on Wednesday to take advantage of the Federal Reserve’s decision the day before to cut its key interest rate to nearly zero.

“They’re calling big-time,” said Louis Spagnuolo, vice president of mortgage banking for WCS Lending in Boca Raton.

Brokers said rates on 30-year, fixed mortgages were below 5 percent, and some borrowers with good credit were locking in at 4.5 percent. Rates on home equity lines of credit were near 3 1/4 percent.

“Pretty phenomenal,” said Jim Sahnger, a vice president with Palm Beach Financial Network.

The national average rate on 30-year, fixed mortgages was 5.06 percent on Wednesday, according to financial publisher HSH Associates – the lowest since the 1960s and down from 5.3 percent Tuesday.

The Fed’s announcement was the best news in months for anyone looking to buy or refinance. But it’s not expected to be a cure-all, and borrowers already in danger of foreclosure or those who don’t have equity in their homes probably won’t be able to take advantage.

“It’s a call to action for homeowners looking to get out of adjustable-rate mortgages,” said Greg McBride, senior financial analyst at Bankrate.com in North Palm Beach. “Unfortunately, it’s not an equal-opportunity party.”

Mortgage rates are the top variable in housing affordability, and the Fed’s action this week was unprecedented, said Chris Lafakis, a economist covering Florida for Moody’s Economy.com.

Still, Lafakis and other analysts say South Florida’s housing market faces serious challenges, especially now as job losses mount. The picture here won’t improve until the excess supply of homes is sold off. And that might not be until 2010.

An estimated 12 million Americans owe more on their home loans than their properties are worth, and foreclosures are soaring.

“I think it’s a stretch to say that this is a panacea for the housing market and the economy, but it’s nothing to scoff at, either,” Lafakis said.

Besides lowering the interest on fixed-rate mortgages, rates should come down on adjustable-rate home equity loans. Those are tied to the prime lending rate, and banks and lenders began lowering the rate immediately after the Fed’s move Tuesday.

The Federal Reserve also plans to buy up mortgage debt and is considering buying long-term Treasury bonds that are closely tied to mortgage rates, so analysts expect rates to drop even further.

As a result, some people are asking whether they should wait to apply for a mortgage or refinance, said Spagnuolo of WCS.

“If you can find a rate that you’re comfortable with, pull the trigger now because you don’t know what the future holds,” he said.

For homeowners who haven’t been able to sell their houses, the lower rates represent an opportunity to at least save some money. And if they have enough equity in their homes, they can still pull out money to make improvements, albeit at a higher interest rate.

Tony Jabon had an e-mail in to his mortgage broker by 10 a.m. Wednesday.

The 35-year-old environmental consultant in Charlotte, N.C., had heard about the Federal Reserve’s decision to cut its key interest rate to nearly zero and wanted to refinance to something lower than 5.5 percent.

Within hours, he had locked in a rate of about 4.6 percent. He’ll save about $160 on his monthly payment. “Any time you can save a dollar,” he said, “why not?”

Copyright © 2008 Sun Sentinel, Fort Lauderdale, Fla., Distributed by McClatchy-Tribune Information Services. The Associated Press contributed to this report.