HOME MORTGAGES Borrowers play 'chicken' with ever-plummeting rates

The average 30-year mortgage has fallen to 5.34 percent.
Mortgage rates set yet another new low this week, the seventh record this year and the second week running. And Americans are responding, taking out loans to buy and refinance their homes at a furious pace.
But the possibility that rates will continue to drop presents a new conundrum for borrowers: whether to lock in at today's low rates or to wait to see if tomorrow's are even lower.
Some lenders offer the option to lock in the current rate and buy a one-time "float-down" in hopes of a lower rate, but that's not free. The offer usually requires paying slightly higher fees or a slightly higher rate. In other words, if the going rate today is 5.25 percent, a homeowner could get a float-down by agreeing to sign for 5.38 percent. Then, if the market drifts down to 5 percent, the customer would pay 5.13.
"Everybody always wants to lock in and to get the benefit of a rate improvement," said Paul Skeens of Carteret Mortgage Corp. in Fort Washington, Md. "Everybody wants both and they don't want to pay for it."
Skeens and others argue that betting that the rates might fall further is risky because the rates might also go up. But even those expressing caution say the most recent slide and Federal Reserve Board Chairman Alan Greenspan's warnings that the economy may not improve anytime soon make the idea tempting.
A look at the numbers
Long-term mortgage rates are now at least at 41-year lows, according to numbers released Thursday by Freddie Mac.
The average interest rate on a fixed-rate 30-year mortgage fell to 5.34 percent this week, Freddie Mac said. That compares with the record low of 5.45 percent a week ago and 6.81 percent a year ago. That means the principal and interest payment on a $100,000 30-year loan now would be $558 per month, compared with $653 a year ago.
The average rate for a 15-year mortgage is 4.73 percent, down from last week's record low of 4.84 percent. A year ago 15-year rates averaged 6.28 percent. Rates on one-year adjustable-rate mortgages (ARMS) dipped to 3.61 percent, also a new low, compared with last week's 3.67 percent and 4.85 percent a year ago. All these rates assume the borrower is paying 0.7 points in fees, or seven-tenths of a percent of the value of the loan.