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Mortgage rates fall below 4%

Amy Scott Oct 6, 2011

Mortgage rates fall below 4%

Amy Scott Oct 6, 2011

Kai Ryssdal: The now-standard 30-year mortgage in this country has been around for 70 years, plus or minus. Still, I’m not sure the following words have ever been strung together to form a complete sentence.

The mortgage finance company Freddie Mac said today the average rate on a 30-year fixed is 3.94 percent. 3.94 percent.

And that’s the average rate, right? So you’d expect to find a lot of people are paying well under 4 percent right now. As usual, it pays to read the fine print, as Marketplace’s Amy Scott reports.

Amy Scott: Less than 4 percent? Is that for real?

I called Jeff Gunther with Prosperity Mortgage.

Scott: Are any of your clients getting conventional loans for under 4 percent?

Jeff Gunther: Not without paying points.

Paying “points” means paying a fee up front to lower your interest rate. Each point is 1 percent of the loan’s value. Not worth it, Gunther says, unless you plan to stay in your house several years. Still, he says, you’ll see a lot of ads these days for 30-year fixed mortgages below 4 percent.

Gunther: It’s called a leader ad. And people run them to get the phone to ring. ‘Oh, you want that rate? Well that rate’s with a point. Let me give you the rate without the points.’

And here’s where the fine print comes in. That 3.94 percent average from Freddie Mac comes with a fee, of almost one point.

Frank Nothaft is chief economist at Freddie Mac. He says including that fee, the effective average interest rate on that 30-year fixed is closer to 4.1 percent.

Scott: That’s still insanely low, right?

Frank Nothaft: Oh my gosh, it’s incredibly low. What a bargain!

And some people are managing to pay less than that. Josh Foti is general manager of the restaurant Reilly’s Oyster in Baltimore. He just locked in a rate for a $200,000 loan backed by the Federal Housing Administration.

Josh Foti: I got a 3.75 fixed for 30-year.

No points. And his credit is good, but not great.

Foti: I was really surprised, about fell out of my chair. It’s just a great rate.

Apparently it’s going to take more than cheap money and low home prices to get more people like Foti in the market. Mortgage applications fell last week.

In Baltimore, I’m Amy Scott for Marketplace.

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