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American Morning

Examining Mortgage Rates

Aired August 16, 2001 - 11:01   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DARYN KAGAN, CNN ANCHOR: The number one financial issue for a lot of people, their mortgage and your money and when those latest mortgage rates come out this hour, some experts predict they'll tumble to a national average of 6.9 percent. That would be the cheapest housing money since the end of winter. And you may find yourself in the penny pinching predicament -- is it time to lock in, to refinance or to gamble on even lower rates?

Our financial correspondent Lisa Leiter is at the Chicago Board of Trade and Elizabeth Razzi is in Washington. Elizabeth writes for "Kiplinger's" magazine, "Personal Finance" magazine. And with these women we're going to figure out what to do with our respective mortgages.

First, Lisa, to you. Tell us more about the kind of numbers we're expecting.

LISA LEITER, CNN CORRESPONDENT: Well, Daryn, we are expecting mortgage rates to fall below seven percent this week. The numbers you're talking about are the Freddie Mac numbers, which will be out shortly. But I do have the national average for the 30 year fixed rate mortgage from bankrate.com, which is another measure that we look at. And they fell to 6.96 percent this week, and that's the first time that the 30 year fixed rate mortgage average has dropped below seven percent, the first time since March. And it is approaching its low for the year, as well.

Now, you might be wondering why that's happening right now and one of the reasons is what's going on right behind me. Here at the Chicago Board of Trade, 10 year notes futures trade and mortgage rates are tied to the interest rate on the 10 year notes. And those interest rates tend to move before the Federal Reserve cuts interest rates. And lately the 10 year note interest rate has dropped substantially on the idea that the Fed might have to cut interest rates even more because the economy is so weak. So a lot of people were very confused earlier this year when you didn't see mortgages dropping as the Federal Reserve cut interest rates six times. And the reason is because this market had already priced in a lot of those interest rate cuts and the interest rates here weren't moving down so mortgage rates weren't moving down.

But now they are and this may be a dip, the last dip we see in mortgages, according to experts, before we start to see them spike higher later this year as the economy rebounds -- Daryn. KAGAN: All right, let's bring Elizabeth in right now. Elizabeth, each person saying those numbers are very interesting, but what does it mean to me? How do I know when it's time to refinance my home? Is there a formula of things you need to take into account?

ELIZABETH RAZZI, "KIPLINGER'S PERSONAL FINANCE": What you have to look at, really, is a little bit of math. You need to look at how long you're going to stay in that home or hang onto that mortgage because even, any time you refinance a mortgage, there are costs involved, whether or not you have to write a check for them or you roll them over into the loan balance.

So what you need to do is get a good estimate of those costs from the lender and then look at the monthly savings that you would enjoy from a better rate, calculate how long it would take for those monthly savings to pay off that cost of getting the new loan and if you're going to hang onto that loan at least that long, then it's a good deal.

KAGAN: So don't be seduced, necessarily, by falling interest rates? Make sure it works for your own personal situation.

RAZZI: Absolutely.

KAGAN: What about first time home buyers that are looking like maybe this is finally a time when I can get in?

RAZZI: You know, the rates have been remarkably stable through the summer. I mean they may be going down a little bit this week, but it's not a lot. We're talking about a fraction of a percentage point. They've been remarkably stable through the summer, 30 year fixed rates at around seven percent. That's a fantastic interest rate for a first time home buyer. And you can even try to shave a little bit off that if you're really strapped for cash by looking at an adjustable rate mortgage. They're even lower. They've been around 5 1/2 percent lately.

KAGAN: Which historically is incredible.

RAZZI: That's a great, great interest rate, and if the Fed should cut its interest rates further next week, that may dip down a little bit farther. And especially if you are young in your career and you have some earnings potential and you could maybe handle it a couple of years it should actually adjust up, then that's a very good option for you.

KAGAN: Good time to get in.

Elizabeth Razzi, Lisa Leiter, thank you ladies for helping us look at mortgage rates. Appreciate it.

LEITER: You're welcome.

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