Five good tips for mortgage shoppers

CHICAGO — After a recent spike in mortgage rates, some consumers have been wondering whether they've missed their chance to refinance into an ultralow rate.

Fear not: While the conforming 30-year fixed-rate mortgage has been bumping around the mid-5 percent-range, it's possible that rates could continue to fall.

"Predicting interest rates is like predicting who is going to win the World Series, in January," said Guy Cecala, publisher of Inside Mortgage Finance. That said, he calls the recent spike "somewhat of an aberration," and expects rates will continue to drift down.

Why the recent run-up in rates? Over the past month or two, "the economic skies have brightened somewhat," said Keith Gumbinger, vice president of HSH Associates, a publisher of consumer-loan information. And the threat of "trillion-dollar budget deficits for the foreseeable future, the potential for significant inflation, and few clues as to how the government might extricate itself from intrusions into markets" created a landscape that was not appealing to investors, he added.

But now, rates are retreating partly because inflation doesn't seem as immediate a threat as investors feared, Cecala said.

In his opinion, nothing fundamentally has changed in the economy over recent weeks to warrant the rate rise. He expects volatility through the remainder of the year as investors debate the economy's health.

"Realistically, I think that the rates will drift under 5 percent again. It may take a month, may take two months," Cecala said.

It's also important, however, to realize that extremely low rates likely won't be around forever, said Bob Walters, chief economist of Quicken Loans, in a statement.

"Luckily, we have seen rates drop some [recently], which should help many consumers breathe a little easier," Walters said. "But the fact remains, the government's plan of purchasing mortgage-backed securities cannot go on indefinitely, and when it ends, we will most certainly see a spike in rates. The hope is that the Fed can keep rates low long enough to kick-start a housing recovery. Whether that will work remains to be seen."

"Volatility is the key word in the mortgage industry these days when it comes to rates," said Kyle Kerwin, senior vice president of mortgage lending for Signature Bank of Arkansas.

Here are five tips for those shopping for a mortgage today, particularly those who need to refinance an existing loan:

1. Get started on paperwork. Once you've found the mortgage professional you'd like to work with, get started on the necessary paperwork, said Dan Green, author of TheMortgageReports.com. Rates move regularly, and if paperwork has been started your file can be processed more quickly when rates hit a low.

When you start the application process, your credit score will be pulled and you'll need to submit support documentation including W-2 forms and pay stubs. You might be asked for updated documents nearer to closing.

2. Make sure your credit is in good shape. Check credit reports and fix problems as soon as possible, said Mary Curran, president of Highland Financial Mortgage in Northbrook, Ill. Even seemingly small charges can haunt a borrower: A forgotten, unpaid parking ticket, for example, can noticeably affect a credit score, she said.

3. Decide at what rate it makes sense to pull the trigger. If you have a 6 percent rate now, rates would have to hit 5 percent or lower for it to make financial sense to refinance, Cecala said. Talk with your mortgage professional about what's best for your particular situation.

4. Stick to your guns. Once you determine the rate you'd need to get, it's probably wise to stick to that decision. Consumers sometimes gamble that rates will go lower, and the plan can backfire if rates reverse course, Kerwin said. A few weeks ago, rates were close to 4.5 percent in his market, "and people wanted to hold out for an extra eighth of a percent."

5. Remember, rates are still good. Yes, rates could fall and create another record low as a result of a swoon in the stock market, a collapse of a major bank or a deepening of a recession, Gumbinger said. But it isn't likely that many consumers would crave those economic shocks.

"Why would anyone wish for those things again to simply get a rock-bottom, ultra low mortgage rate? If it means saving $250 per month on your mortgage but it costs you $50,000 in your 401(k), how could this be seen as any kind of benefit?" he said.