NEW INTEREST IN ~~~~~~~~~`FIXED-RATE' MORTGAGES

CAPE GIRARDEAU -- Until the mid 1970s, home mortgages were basic affairs, having low fixed interest rates ranging up to 6 percent, and fixed loan periods of 30 years. But, with the remnants of the Vietnam War, the OPEC energy crisis and mounting inflation of that era, the home loan scenario lost its focus as interest rates skyrocketed to 18 and 19 percent levels.

Financiers brought in a new kid on the block, the adjustable rate mortgage (ARM), which was accepted by consumers wanting to see lower interest rates, even if for a short period. As an alternative, the ARM all but replaced the fixed rate mortgage until recently.

Now, the pendulum is swinging back in its cycle.

Moderating interest rates have removed the candy coating from ARMs for consumers who are once again gravitating to fixed rate mortgages.

"The move to fixed rate mortgages again is due to the interest rates to make them at a very attractive rate," said Jay Knudtson, a real estate loan officer at Boatmen's National Bank of Cape Girardeau. "The rates may be as attractive as we'll see in our lifetimes."

A few years ago, fixed rate loans were almost unheard of. In the near future adjustable rate mortgages, ARMs, may be in the same situation. "The trend in 1991 should continue away from ARMs to fixed rate loans. Past 1991, if interest rates stay down, this trend should continue," Knudtson said.

Following the Federal Reserve Board dropping its discount rate last month, some major banks lowered their prime interest rate last week from 10 to 9.5 percent. The prime rate had been at 10 percent all of 1990 after peaking in early 1989.

Consumers are wanting to feel the security of locking onto relatively lower interest rates that a fixed rate mortgage provides. Currently Boatmen's fixed rate mortgage is running one-half to 1 percentage point less than its ARM. For an in-house loan from the bank, a homeowner would pay 9.5 percent interest plus one point for a 15-year fixed rate loan on an owner-occupied dwelling. In contrast, the homeowner would pay 10.5 percent on a three-year and 10 percent on a one-year ARM but with no points. The ARMs have a 2 percent adjustment cap per period with a five percent maximum lifetime cap up or down on the interest rates.

These loans are in the bank's local portfolio and not under secondary market, such as Federal National Mortgage Association, formulas.

Although most consumers find the fixed rate loans more alluring, a few may be better off with the ARMs to finance their home purchase. "Homeowners who know they will be there just a few years have an advantage with an ARM," Knudtson said. He gave the example of company executives who expect to be transferred in less than three years would benefit with ARMs since they would be saving money.

Consumers who took ARMs three years ago are being surprised now with slightly lower monthly payments. In late 1987 and early 1988, the interest rate was pegged at 10.5 percent. The renewal rate currently is 10.125 percent.

With interest rates moderating, some consumers are trading in their ARMs for fixed rate mortgages to lock in lower interest rates. The transition may be advantageous to people who expect to remain in their homes for awhile.

The cost of refinancing and the expected amount of savings in payments are among the determining factors in the analysis. An average loan may cost between $1,300 to $1,700 to refinance, according to Knudtson.

"You cannot make a broad statement that ARMs should be refinanced," he said. "We do encourage customers to come in and look at the figures. Refinancing ARMs can save some people tens of thousands of dollars and get the security of a fixed rate." Switching from an ARM involves refinancing costs of one point, which is 1 percent of the loan amount, and about $1,000 in legal, processing and other fixed fees.

"The cost of refinance can be done without out of pocket expenses by including the costs in the fixed rate loan," Knudtson added.