Mortgage rates should remain low in 2011

House on mortgage

If you're looking to buy a house or refinance in 2011, you should still be able to find some of the lowest interest rates since the 1950s.

Interest rates took a quick and unexpected jump after the deficit-swelling tax cut deal that President Obama and Republican leaders reached in early December.

But most economists expect the average cost of a 30-year, fixed-rate mortgage will stabilize and remain below 5.5% through most of the year.

"I think things will flatten out in the early part of 2011, and I'm expecting the new normal level in the 5.20 to 5.50% range for a 30-year fixed origination," says Cameron Findlay, chief economist for Lendingtree.com.

While that's a half point, or even three-quarters of a point, more than the record low for those kinds of loans reached in November, it's still a bargain when you look back over the past several decades.

Throughout the 1990s, mortgage rates ran around 8%, and double-digit mortgages were the norm during the 1980s.

Combine that with the fact that housing prices are down more than 25% from their record highs four years ago, and it's still very possible to live in a home for much less than you would have paid during the housing bubble.

Let's say you want to buy a $200,000 home that was going for $250,000 back in 2007.

You'll make a 20% down payment on a 30-year mortgage, but that loan costs 5.5% today, instead of the 6.5% you would have paid before the financial crisis.

If you had bought that house during the bubble, your monthly principal and interest payment would have been a little more than $1,260 a month.

But the same house payment today would be just over $900 a month.

"If you are someone who is renting and you have a job and a down payment, you're still in a great position," Findlay says. "Life is grand."

Our mortgage calculator will show you the monthly payment for any fixed-rate loan, regardless of the amount, rate or term.

This "Rent or Buy" calculator can help you decide where it makes the most financial sense to live.

It should also be easier to get a mortgage in 2011.

That is to say, it will be easier than at the height of the financial crisis when lenders were rejecting more than half of the applications they received, but not as ridiculously easy as during the bubble years of 2005 and 2006 when no one checked anything.

But to qualify for a lender's best possible rate, you'll need good credit and a reasonable down payment.

You'll need a FICO score of 720 and a down payment of between 5% and 20% of the purchase price, depending on the state of your finances.

To qualify for a government-backed FHA loan, you'll need a FICO score of at least 640 and enough cash for a 3.5% down payment.

Borrowers should also be prepared to document every aspect of their finances, from their income and assets to their debts.

"Everything is looked at so closely now," says Frank Ruzicka, a mortgage banker at Cornerstone Mortgage in St. Louis. "We have verifications of stuff where we are just drilling down to the most minute details."

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