Mortgage rates fall for the week of September 29, 2014

Posted by  on Oct 06, 2014

Ever since mid-May, excluding the last couple of weeks, average rates for 30-year fixed-rate mortgages (FRMs) have jogged along within a very narrow band: the lowest during that period was 4.15 percent and the highest was 4.25 percent. Then, two weeks ago, that band was busted as the rate jumped 8 basis points (to 4.29 percent from 4.21 percent) in a single seven-day period. And everyone wondered whether the much-anticipated and seemingly inevitable long-term rise in mortgage rates was finally underway. Today, that seems unlikely.

Last week's mortgage rates

Last week, the average rate for 30-year FRMs fell for the second week running and, by October 3, sat (as it did on August 8) at 4.23 percent, according to HSH.com (again, well within that narrow band). Points also fell, to 0.12 from 0.15. The average for 15-year FRMs inched down too: to 3.52 percent from 3.55 percent, with points for these dropping to 0.9 from 0.11. The ever-volatile adjustable-rate mortgage (ARM) market for once followed the FRM trend, with 1/1 30-year ARMs averaging 2.70 percent, down from 2.76 percent seven days earlier, and points tumbling to 0.12 from 0.26.

Our live database of current mortgage rates can help you find the best mortgage rates in your area.

ARMs and refinances

That ARM rate may have caught your eye. It's a bit of a bargain. That particular rate (for the 30-year 1/1 version) has only been lower three times since the start of 2013, and even then by no more than 5 basis points (0.05 percent). But is it ever wise when you're looking to refinance to switch from an FRM to an ARM?

The short answer is: Yes! Although the slightly longer answer is that it's only wise in very particular circumstances, most commonly when:

  1. Mortgage rates are high and likely to decline significantly, something that certainly doesn't apply right now.
  2. The gap ("spread") between your adjustable-rate and fixed-rate choices is so wide you're going to be cushioned from wider rate rises. This can work if the caps on the amount your ARM can rise (both overall and at any one review) are tight enough. These caps are laid down in your mortgage offer, and are one of the first things any potential ARM borrower should check.
  3. You're close to certain you're going to sell your home before the ARM rate floats. The "1/1" in 30-year 1/1 ARM means the mortgage rate is fixed for one year, and is then reviewed (can be raised or lowered, depending on wider interest rates) every one year thereafter. If you choose a 5/1 ARM or a 7/1 ARM, your rate should be fixed for five or seven years respectively before being subject to review, and many homeowners know they're going to be moving during those time frames.
  4. You can't afford your current FRM rates but you can manage ARM payments. This is risky, and only stands a chance of working if you are sure your income is going to go up enough to cover any rate rises -- which might be considerable.

ARM refinance rates are certainly attractive right now, but you need to carefully balance the potential risks and rewards before taking advantage of them. Be sure to use our mortgage calculators when making up your mind.

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