A Quandary of Interest to Homeowners : Jump in Mortgage Rates Leaves Many Wondering If They’ve Missed the Refinancing Boat

An unexpected jump in mortgage interest rates has left many homeowners in a quandary, wondering whether they should refinance their loans now before rates can move higher or wait and hope that they will head south again, housing analysts say.

“I’m completely lost,” said Lynn Brown, a West Los Angeles homeowner who’s trying to figure out if she should refinance her home loan at today’s higher rates or delay her plans in the hope that rates will fall again.

“My loan broker kept telling me that rates were going down, and now they’ve jumped back up again. And if he doesn’t know which way rates are going, how am I supposed to?”

The average interest rate for a 30-year fixed mortgage shot up to 8.23% last week from 8.06% the week before. It was the third weekly increase in a row and the sharpest since mid-January.

Analysts primarily blame the recent uptick on bond traders’ concerns about the effect a win by Democratic presidential nominee Bill Clinton would have on long-term rates.

“There are really two theories on what effect a Clinton win would have on interest rates, but both of them have the same result,” said Paul Havemann of HSH Associates, a Butler, N.J.-based firm that tracks interest-rate trends.

“One theory says that Clinton would increase federal spending, which means that government borrowing would go up and rates would move higher. The other says that Clinton would get the economy back on track, but a recovery would force rates higher too.”

But no matter who wins, Havemann said, “the long-term trend for rates is upward.”

Many homeowners rushed to refinance their existing loans about mid-year, when mortgage rates dropped below 8% for the first time in two decades.

Many others who waited, hoping rates hadn’t hit bottom, are now wondering if they made the right bet.

“I would say go ahead and refinance now, especially if you plan on staying in the home long enough to recoup the costs of setting up the new loan,” said John Lucas of ARCS Mortgage, the Calabasas-based subsidiary of Bank of New York.

Some analysts say the recent run-up has given new luster to adjustable-rate mortgages, which fell out of vogue when fixed-rate loans began to plunge earlier this year.

Although ARM rates have also been edging higher, they haven’t risen nearly as fast as fixed mortgages.

The average ARM rate now stands at 5.13%, more than three points lower than average fixed rates, according to the Federal Home Loan Mortgage Corp., also known as Freddie Mac.

A rule of thumb says that ARMs are a borrower’s best choice when their rates are at least 2.5 points lower than those on fixed loans.

The current 3.1-point spread between 30-year fixed loans and adjustable-rate mortgages is the widest since October, 1987, according to Freddie Mac.

“I think that you’ll see ARMs grab a little bit more market share,” said Robert Van Order, the agency’s chief economist.

Van Order said homeowners who failed to take advantage of lower rates earlier this year should also seriously consider 15-year mortgages.

Rates on most 15-year loans are still a bit under 8%.

Although monthly payments on a 15-year schedule would be about 30% more than payments under a 30-year plan, a borrower would save tens of thousands in finance charges over the life of the loan and pay the mortgage off in half the usual time.

If nothing else, experts say, homeowners who are thinking about refinancing should at least begin shopping around for the best rate and terms and start filling out all the necessary paperwork.

“It’ll take at least a few weeks to get an appraisal and have your loan approved, and God knows where rates will be by then,” said Phil Lichterman, a mortgage broker and owner of ERA Performance Realty in Van Nuys.

“If rates go up and you want to back out, it shouldn’t cost you much money,” he said. “But if rates go down from where they are now, you should be able to get the lower rate.”

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