MORTGAGE RATES

Mortgage rates increased slightly as the Federal Reserve raised short-term interest rates for the 11 th consecutive time, and oil prices remained volatile. The average 30-year fixed rate mortgage increased from 5.84 percent to 5.88 percent; according to weekly national survey of large lenders. 

The average 15-year fixed mortgage rate increased as well, rising from 5.44 percent to 5.5 percent, while the average jumbo 30-year fixed rate climbed from 6.02 percent to 6.05 percent.  Adjustable rate mortgages also moved slightly higher, with the average 5/1 adjustable rate mortgage rising from 5.4 percent to 5.46, while the average one-year ARM ticked higher from 4.87 percent to 4.9 percent.

Fixed mortgage rates have been marching to a different tune than that set by the Federal Open Market Committee.  Even though the Fed has increased short-term interest rates by a total of 2.75 percentage points since June 2004, the average 30-year fixed rate mortgage has fallen by nearly one-half percentage point in that time.  In raising interest rates Sept. 20, the Fed acknowledged the short-term economic impact of Hurricane Katrina but indicated that over the long term it will not pose a more persistent threat. 

Mortgage rates have not been an obstacle to home buyers as the average 30-year fixed mortgage rate has remained below 6 percent every week since April 13.  While many adjustable rate mortgages are resetting to higher rates, low fixed mortgage rates represent an attractive option to both current and new home buyers.  With an average 30-year fixed rate now at 5.88, a loan of $350,000 carries a monthly payment of $2,071.50.

Another interesting program that is quite popular in the market today is your interest only programs.  Using the same example above, a loan of $350,000 carries a monthly interest only payment of $1,715 using the same rate of 5.88 reducing the monthly payment by approximately $356.50.  In other instances, this enables a Hawaii buyer to buy a home higher in sales price than they would have been able to do so with a 30-year fixed mortgage.  In Hawaii , an average homeowner buys and sells their homes in a span of five years.  Using these criteria, most people are only familiar with a 3 0-year fixed mortgage, and are not taking advantage of the more diversified programs that are available to them with this high market.  So if the average home owner sells in five years, then why are you using a 30-year fixed mortgage?  Maybe a more diversified and aggressive program may best suit your needs.  Th e average appreciation in Oahu according to the Honolulu Board of Realtors' statistics from 2004 to 2005 is “25%” per year.  As an example if you buy a home for $400,000 in 2004, using the “25%” appreciation statistic, your home will be worth $500,000 with an appreciation of $100,000 in 2005.

This column is geared to a Questions and Answer column, so if you have any questions, please email these questions to chichi@mortgage-hawaii.com .