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MORTGAGE RATES ARE BACK BELOW 10%

HUMANS ARE a conditioned bunch.

Just like Ivan Pavlov's canines, which over time equated a ringing bell with food and actually salivated when the bell sounded, potential home buyers and those looking to refinance their loans begin licking their lips and rubbing their hands in glee when interest rates dip below 10 percent.

Let the lip-licking begin.

It's become relatively easy in the Buffalo area to find a rate at or under double digits -- and that includes zero points. A point is 1 percent of the mortgage amount.

Nationally, rates sank under 10 percent around Thanksgiving, according to Butler, N.J.-based HSH Associates. As of last Thursday, the national average on a 30-year, fixed-rate loan was 9.65 percent -- the lowest average since April 1987 -- and falling.

Locally, should should you feel inclined to pay points up front in exchange for a lower overall rate, a 30-year, fixed-rate loan with just 5 percent down can be had in the 8.5 percent range. The last time the Niagara Frontier saw rates that low was about 18 months ago.

Mortgage lenders say that December is shaping up as a good month due to the lower rates, but that the one-two punch of a recessionary economy, coupled with inflation caused by higher oil prices brought on by the potential for war in the Middle East, continues to keep a lot of potential customers on the sidelines.

"There are two conflicting forces affecting mortgage rates today," said Robert Roth, president of Spectrum Home Mortgage Corp. in Williamsville. "The gloomy economic news means the Federal Reserve should continue to ease rates and we would anticipate lower rates well into the first quarter of 1991.

"However, counter to that is the threat of inflation caused by oil prices," Roth said. He predicted that business should pick up, provided there is no shooting between U.S. and Iraqi forces.

Still, for those looking to buy or refinance, it might not pay to maintain a fence-sitting posture. Granted, everyone wants the lowest rate possible. But rates fluctuate so quickly in today's market that waiting for that extra eighth or quarter-point could spell disaster.

"I can't see rates going much lower than they are right now," said Bob Amico, sales manager in Buffalo for Norstar Mortgage Corp.

With rates at or under 10 percent, some home owners holding adjustable rate mortgages are moving to secure a fixed-rate loan. The teaser, or low initial, rate is long gone on their ARM and now the economic reality of a large monthly payment has set in.

"There are two reasons that a person refinances," Roth said. "One obviously is the rate. Generally a 1.5 percent to 2 percent decrease in rates means it's a good time to refinance. The other reason is because you have an adjustable rate mortgage and want to get into a fixed-rate loan."

Norstar's Amico said his office has had a tremendous number of calls from potential refinancing customers. His staff currently is going through lists of ARM holders, contacting them to let them know the advantages of refinancing.

"We've had a great deal of telephone interest concerning rates over the last two weeks, which we think will come into fruition early next year," said Bruce Kiernan, Marine Midland's group executive for secondary marketing and retail mortgage banking.

At American Home Funding, 20 percent to 25 percent of the monthly $6 million in new loans written are refinancings, said Pam Serafini, American Home vice president and Buffalo branch manager.

Refinancing is not free; there are costs associated with the procedure. Among the charges are title insurance, state mortgage tax and legal fees. Roth estimates that on a $50,000 mortgage, the total cost would be about three points, or $1,500.

On a $100,000 loan, the cost would be closer to two points, or $2,000, because a number of the costs involved are fixed, unchanging regardless of the mortgage amount.

"A lot of people with ARMs now can go into a 15-year or 20-year fixed product for about the same payment they have now," Amico said.

The 2 percent rule concerning refinancings generally holds true, but a person also must weigh the up-front costs with how long he, she or they intend to stay in the home. It doesn't make much sense to refinance if you're planning on moving within a short period of time, said David Barrett, a tax partner with the Buffalo accounting firm Freed Maxick Sachs & Murphy.

"You don't want to incur a lot of points expense if you're not staying in the house," he said.

In general, points paid in a refinancing transaction must be deducted over the term of the new loan.

However, the Internal Revenue Service provides an exception to its rule if the points paid are incurred in connection with the purchase or improvement of, and secured by, the taxpayer's principal residence. That portion is deductible immediately.

With a refinancing, the general limit on home equity indebtedness can't exceed the fair market value of the home.

For those looking to hold out in purchasing or refinancing for a few more weeks, the general consensus is that rates could drop to the 9.5 percent range as spring arrives -- again conditioned on no Mideast encounter and on the Fed continuing to ease credit. Once it's certain the war for oil will not occur, lenders expect business to jump.

"A peaceful solution in the Gulf will make a lot of customers get off the fence," Ms. Serafini said.

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