Short-term fixed less expensive than 30-year fixed!

Loans providing a guaranteed fixed rate for a pre-defined period of time, then converted to a variable rate, tend to be less expensive than traditional 30-year fixed loans.

You can count on higher mortgage rates getting higher in 2014 because of these factors:

• The Federal Reserve intends to continue to reduce its monthly purchases of mortgage bonds and Treasury securities.
• Based on the latest quarterly data the national economy is slowly picking up steam. And higher growth rates in turn will increase demand for available credit and thus nudge rates higher.
• New federal regulations for mortgage lenders take effect Jan. 10. These new regulations force loan officers and underwriters to take a closer look at applicants’ income, debt ratios and credit extra. They will also most likely charge more for borrowers whom they determine to be at a higher risk. Mortgage economists predict that conventional 30-year, fixed-rate loans could go to 5.5% before year-end.

So what does this mean for people thinking about buying a house or refinancing in terms of finding the favorable interest rate and terms?

Bruce A. Calabrese, president of Equitable Mortgage Corp. has this to say: “My advice for home buyers” he said, “is to lock [early] into a 30-year fixed” while rates are still under 5%. “Take a 30-year fixed at 4.75% and be happy” because that’s still far below average rates over the last several decades.

Consider these average annual 30-year fixed rates according to mortgage investor Freddie Mac: In 1974, they averaged 9.19% nationwide. By 1984, they were at 13.88%. In 1994, fixed rates averaged 8.38%; and in 2004, 5.84%.

Can you afford today’s housing prices with today’s income?

But what if your concern is being able to afford today’s housing prices on today’s income and household expenses.

Jeff Lipes, a lender and former president of the Connecticut Mortgage Bankers Assn., said that hybrids with fixed rates for five to 10 years “are fantastic options for borrowers,” and can lock in rates that are one or more percentage points below competing the 30-year fixed loans.

“Most first-time buyers purchase a home that will be sold when the family income increases or the family outgrows the house,” Lipes said. “That usually occurs in the first 10 years, so that is why a [hybrid] is a great option. The borrower saves a lot of money” – sometimes hundreds of dollars a month – “paying a lower rate.”

Late December found five-year hybrids averaging around 3.4% nationwide, seven-year hybrids at 3.81% and 10-year hybrids at 4.16%. Thirty-year fixed-rate mortgages averaged 4.63%.

It’s important to check out all the options available to you and weigh them against your specific circumstances.