Mortgage rates have ticked up powered by economic recovery, leaving...

Mortgage rates have ticked up powered by economic recovery, leaving home buyers and those ooking to finance with a new reality. Credit: Newsday, 2007 / Michael E. Ach

The era of record-low mortgage rates is over.

The average rate on a 30-year loan has jumped from about 5 percent to more than 5.3 percent in just the past week, an eight-month high.

An improving economy and the end last month of the Federal Reserve's program to buy $1.25 trillion of mortgage-backed securities -- which helped make mortgages cheaper by keeping interest rates low -- are behind the increase.

As mortgages get more expensive, more would-be homeowners are priced out of the market - a threat to the recovery in the housing market. "We are seeing some panic among potential buyers who have not found houses yet," said Craig Strent, co-founder of Apex Home Loans in Bethesda, Md.

And if you wanted to refinance at a super-low rate, you may have missed your chance. Mortgages under 4 percent are still available, but only for loans that reset in five or seven years, probably to higher rates.

Newsday's Ellen Yan talked to some Long Island lenders about borrowers' options.

Should I wait or lock in an interest rate now?
Most experts expect the rate to drift up, but don't feel you have to rush to the lenders immediately. Rates will probably make a lot of small up and down moves this year, lenders said. "I don't think there's going to be an appreciable difference in 30 days," said Richard Vidal, vice president of Indus American Bank, which has a Hicksville branch. "If anything, maybe we'll go up an eighth of a point or a quarter. The prediction from experts is within the next year, we may have an increase of as much as a point."

How can I get the lowest rate possible before the closing?
A "float down" option will lower the interest rate by about one-eighth of a point, but this will cost several hundred dollars, depending on the amount you borrow, lenders said. This is an area where borrowers might negotiate, lenders said.

What will bring rates down further?
Bad news is good news for borrowers. For example, bad unemployment news in the morning can bring down rates in the afternoon. Just don't expect a big rate drop in one day. "Big swings in days are not that common," said Mike McHugh, head of Continental Home Loans in Melville. "It's a lot of bad days in a row that end up affecting rates and moving them up an eighth, a quarter."

Are adjustable rate mortgages risky?
Such loans got a black eye after the subprime collapse a few years ago. In their place are rates that last for five or more years before going up. McHugh said he's directed loan sales officers to focus more on adjustable rate mortgages and understand them. "Adjustables today are very safe," he said. With AP

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