I have a discussion with a friend of mine on whether it is better to buy a house when interest rates are low, as they are today, or high. I think the recent real estate collapse provides the answer.

The conventional wisdom is that the best time to purchase a house or real estate is when rates are low. We've all heard the saying, "when rates are low you can afford more house." And this is true. When rates are low, buyers can afford more because monthly payments are lower. But the reality is, everyone can afford to pay more and as a result home prices rise for everyone. During the most recent real estate bubble, rock bottom interest rates and lax lending standards combined to create a sellers market. Money was cheap. As a result, home prices soared.

Now, let's look at purchasing a house in a high interest environment. When rates are high, home prices are lower. Like a bond, home prices move inversely to interest rates. So while you may pay a higher rate, you're able to buy the same home because prices are lower.

So is it a wash? Not really. That's because if you purchase a home in a high interest rate environment, you can always refinance your mortgage at some later point when mortgage rates fall. And they will fall at some point because mortgages, like anything else, are cyclical. But if you purchase a home in a low interest environment and mortgage rates rise, then the value of your home drops, your equity disappears and depending on how much equity you have in the house you might be underwater.

The low interest rate scenario is exactly what has happened to millions of people across the country. They purchased a home during the low rate, easy money era between 2001-2005. As banks began to tighten in 2006 and rates began to inch up, the real estate market collapsed. Now, the Fed is trying to reinvigorate real estate by driving rates down again. But because banks are not lending and consumers are worried about jobs, no matter how low rates go they won't be low enough to prop up home prices.

If you're thinking of buying a home in this low-rate environment be careful. Because you most likely will never be able to profitably refinance and chances are, your home's value will go down if mortgage rates go up.

The average rate on a 30-year fixed mortgage dropped last week from 5.01% to 4.97% according to data from Freddie Mac. The average 30-year fixed mortgage from the BestCashCow rate tables also dipped slightly from 5.017% to 5.015%. Mortgage rates have vaccilated around the 5% range for the last four weeks.

Averages though won't get you a mortgage and I like to check and see what rate is actually available. Since I live in Massachusetts I checked Massachusetts mortgage rates. Below I compared the best rate I could find on a $200,000 30-year fixed rate mortgage with 0 points:

This Week Last Week

Rate: 4.750 4.750%

Points: 0 0

Fees: $1,995 $1,995

AimLoan.com continues to hold the lowest rate at 4.750% and 0 points. That's been the same lowest rate for the past 5 weeks. So, in practical purposes, rates have not moved much in the last month.

The 15-year FRM this week averaged 4.34 percent up from from last week when it averaged 4.40 percent. The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.19 versus last week's 4.27 percent. The 1-year Treasury-indexed ARM rose significantl from bit from 4.22% to 4.33%.

Here's what Freddie Mac had to say about the rate situation:

"Interest rates on 30-year fixed-rate mortgages are below 5 percent for a third week this year, which helps a number of homeowners to refinance their existing housing debt" said Frank Nothaft, Freddie Mac vice president and chief economist. "In mid-June of last year, for example, 30-year fixed-mortgage rates topped nearly 5.6 percent. Currently, the monthly payments would be almost $77 per month lower on a $200,000 loan balance.

"In all, more than two out of three mortgage applications were for refinance transactions over the first six weeks of 2010, according to the Mortgage Bankers Association."

The real question though is whether the housing market has stabilized. I wrote about how low interest rates could be a trap for first-time homebuyers in an article entitled Is It A Good Time to Buy a House When Interest Rates Are Low?

If you're going to buy a home, do it realizing that home prices could still fall further. Negotiate hard, get the best possible rate, and be comfortable with the possibility of staying in your house for some time.

Use the BestCashCow rate tables to find the best mortgage rates in your area.

The average rate on a 30-year fixed mortgage dropped to a 10-week low, moving from 4.97% to 4.93% according to data from Freddie Mac. This differs from the BestCashCow averages where the average 30-year fixed mortgage rose from 5.015% to 5.031%. This divergence continues to reflect market uncertainty as 30-year rates vacillate around the 5% range.

Averages though won't get you a mortgage and I like to check and see what rate is actually available. Since I live in Massachusetts I checked Massachusetts mortgage rates. Below I compared the best rate I could find on a $200,000 30-year fixed rate mortgage with 0 points:

This Week Last Week

Rate: 4.875% 4.750%

Points: 0 0

Fees: $1,995 $1,995

For the first time in a month, the best rate mortgage rate for this criteria has increased, reflecting the rise in the BestCashCow national average.

The 15-year FRM this week averaged 4.33 percent down slightly from last week when it averaged 4.34 percent. The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.12 versus last week's 4.19 percent. The 1-year Treasury-indexed ARM dropped significantly from bit from 4.33% to 4.23%..

Here's what Freddie Mac had to say about the rate situation:

“Mortgage rates eased for the second week, while economic data releases suggest that the housing market may be in a slow state of recovery,” said Frank Nothaft, Freddie Mac vice president and chief economist. “The National Association of Realtors® (NAR) reported that existing home sales rose in 48 states and the District of Columbia between the third and fourth quarters of 2009; 32 states experienced double-digit growth. In addition, 67 metropolitan areas saw positive annual house price growth in the fourth quarter, more than double that in the third quarter, according to the NAR.

Mortgage rates are now hovering close to record lows and homebuyers and for homebuyers who haven't refinanced now is a great opportunity. Many are finding that when they refinance, they can cut their mortgage term down to 15 years, savings tens of thousands of dollars on interest.

The economy's low interest rates may be a saver's pain, but they are a borrowers gain.

Use the BestCashCow rate tables to find the best mortgage rates in your area.

The average rate on a 30-year fixed rate mortgage rose by 12 basis points from 4.93% to 5.05% according to data from Freddie Mac. The BestCashCow averages also showed a rise, with the average 30-year fixed rate mortgage moving from 5.031% to 5.042%. 30-year mortgage rates continue to dance around the 5% range.

Averages though won't get you a mortgage and I like to check and see what rate is actually available. Since I live in Massachusetts I checked Massachusetts mortgage rates. Below I compared the best rate I could find on a $200,000 30-year fixed rate mortgage with 0 points:

This Week Last Week

Rate: 4.750% 4.875%

Points: 0 0

Fees: $1,995 $1,995

While the best available rate increased slightly last week, it came back down this week to where it's been over the last five weeks. AimLoan.com continues to offer the best 30-year fixed rate mortgage in Massachusetts according to the BestCashCow rate tables.

The 15-year FRM this week averaged 4.40 percent, up from last week when it averaged 4.33 percent. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.16 versus last week's 4.12 percent. The 1-year Treasury-indexed ARM dropped significantly again from 4.23% to 4.16%.

Here's what Freddie Mac had to say about the rate situation:

“Interest rates for 30-year fixed mortgages followed long-term bond yields higher and rose above 5 percent this week amid a mixed set of economic data reports” said Frank Nothaft, Freddie Mac vice president and chief economist. “For instance, the January producer price index jumped well above the market consensus, but the consumer price index remained subdued and consumer confidence declined to the lowest level since April 2009, according to the Conference Board.

“There were also varying reports as to the current state of the housing market. The S&P/Case-Shiller® national home price index rose for the third consecutive quarter in the fourth quarter, albeit at a slower rate, and the 20-city composite index showed an increase in December 2009 for the seventh month in a row; six metropolitan areas experienced positive year-over-year growth, compared to four in November. New home sales, however, unexpectedly slowed in January to the smallest pace since records began in 1963, and the supply of homes at the current sales rate rose to 9.1 months, the most since May 2009.”

Mortgage rates remain in a tight range. As the chart shows, they've gone mostly sidways since September of 2009. Many analysts are predicting rates will rise, but weak economic data as well as testimony from Fed Chairman Bernanke show the economy is still far from recovered. Even with the Fed ending its purchase of MBS, it's possible rates may stay well below 6% for some time.

Use the BestCashCow rate tables to find the best mortgage rates in your area.

Average mortgage rates moved very little over the past week with the 30-year fixed rate mortgage moving down 2 basis points from 4.97% to 4.95%. The BestCashCow averages also dropped, with the average 30-year fixed rate mortgage moving from 5.015% to 4.964%.

Averages though won't get you a mortgage and I like to check and see what rate is actually available. Since I live in Massachusetts I checked Massachusetts mortgage rates. Below I compared the best rate I could find on a $200,000 30-year fixed rate mortgage with 0 points:

This Week Last Week

Rate: 4.750% 4.750%

Points: 0 0

Fees: $1,995 $1,995

AimLoan.com continues to offer the best 30-year fixed rate mortgage in Massachusetts according to the BestCashCow rate tables at 4.750%. It has remained at this rate for 6 out of the last 7 weeks. Despite all the talk of the Fed ending its program to lower mortgage rates, mortgage rates have shown any indication to date that the are moving up.

Other mortgage averages also showed little movement. The 15-year FRM this week averaged 4.32 percent, down from last week when it averaged 4.33 percent. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 4.05 versus last week's 4.11 percent. The 1-year Treasury-indexed ARM dropped from 4.27% to 4.22%.

Here's what Freddie Mac had to say about the rate situation:

“During a light week of mixed economic reports, mortgage rates eased somewhat,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Pending existing home sales fell 7.6 percent in January, well below the market consensus of a 1 percent gain. Meanwhile, the economy lost only 36,000 jobs in February, fewer than market forecasts, and the unemployment rate held steady at 9.7 percent. In addition, revisions added a net 35,000 workers to January and December combined.”

Mortgage rates continue to move in a tight range. As the chart shows, they've gone mostly sidways since September of 2009. Many analysts are predicting rates will rise, but we have yet to see any indication of that.

Use the BestCashCow rate tables to find the best mortgage rates in your area.

Average 30-year fixed mortgage rates rose above 5% last week, moving up 9 basis points from 4.99% to 5.08% according to the Freddie Mac Primary Mortgage Survey. That's the highest rate since December 31, 2009 when rates stood at 5.14%. The BestCashCow mortgage averages showed the same trend with the 30-year moving from 4.95% to 5.04%. This is not the first time that rates have moved above 5% over the last couple of months, as the chart below shows but what is different this time is the end of the Fed's purchase of mortgage backed securities on March 31 as well as a rise in Treasury Bonds. Most analysts expect that rates will move up modestly (by 20-50 basis points) and I explore this a bit in an earlier article entitled: Will Mortgage Rates Rise When the Fed MBS Program Ends?

We'll see what happens to rates over the next couple of weeks as the market begins to digest the lack of the Fed in the mortgage market and a recovering economy.

Averages though won't get you a mortgage and I like to check and see what rate is actually available. Since I live in Massachusetts I checked Massachusetts mortgage rates. Below I compared the best rate I could find on a $200,000 30-year fixed rate mortgage with 0 points:

This Week Last Week

Rate: 5.000% 4.875%

Points: 0 0

Fees: $1,995 $1,995

The best mortgage rate I could find is now 5%, up from 4.875% the week before and 4.725% two weeks ago. Best rates, at least in my area, have now moved up 25 basis points. This is the first significant increase in actual rates that we've seen in the last four months. Rates do seem to be on the rise.

Related Mortgage Video - Key Things to Know About Getting a Mortgage

Other mortgage averages also showed movement. The 15-year FRM only moved from 4.34% to 4.39%, the 5-year ARM dropped from 4.14% to 4.10%. The volatile 1-year Treasury-indexed ARM dropped from 4.20% to 4.05%.

Here's what Freddie Mac had to say about the rate situation:

“Interest rates for fixed mortgages rose this week following a run up in long-term bond yields, while ARM rates eased slightly,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Rates on 30-year fixed loans were the highest since the starting week of this year.

“Home-price declines continue to moderate with more metropolitan areas showing stabilizing or rising values. Compared with one year ago, house prices were down 0.7 percent in January 2010 in the S&P/Case-Shiller® 20-City Composite Index, which was the smallest 12-month decrease since January 2007. Nine of the cities experienced positive growth, led by San Francisco’s 9.1 percent annual gain. Recently, the Mortgage Insurance Companies of America reported that homeowners who moved out of default outnumbered those who became newly delinquent in February, which was the first such occurrence since March 2006.”

Use the BestCashCow rate tables to find the best mortgage rates in your area.

Points, to pay or not to pay?

On the first installment we got as far as mutual funds, and got bogged down in the age old debate, NO LOADS vs LOADS this time we will just let that sleeping dog lie, and move on to another topic.

Let’s talk a little about points as it relates to the mortgage industry. Once again you have two camps, the no points no matter what camp, and the, hey it’s okay if it will get me the best rate, camp. And that’s the bottom line isn’t it? We want to know we got the best rate possible for our unique situation, and we want to be sure we are comparing apples to apples.

In the mortgage industry points are used to buy down the base rate on a lender's rate sheet. There will always be the base rate with zero points, then there will be pricing for one point, one and a half, two, two and a half, etc…These tax deductable points are also called discount points.

I cannot tell you how many times I got on the phone with a potential borrower and the first thing they tell me is that they will not pay any points for any reason. I think this attitude comes from the practices of some bad, small lenders who used to charge up to five points on a loan. Think about that for a moment. Your loan amount is five hundred thousand, and you have to pay twenty-five thousand off the top just to get the job done. That’s a hard pill to swallow.

Now take that half a million dollar loan and let’s give it a six percent rate. Your monthly principle and interest payment is going to be $2,997.75. Now let’s pay two points to get that rate down to four and three quarter percent. The cost of points is ten thousand dollars. Your new monthly payment is $2,608.24. That is a savings of $389.51 a month. Over the life of your loan your payment of ten thousand in points is going to save you $140,223.60. If I were to trade you 140k for your 10k payment, how long would you stand there doing the trade? I’d stand there all day. There is a catch though. If you are not going to stay in the house more than two years you may not make back that ten thousand in points, so let’s do the numbers. It is going to take you 25.67 months to pay off the ten thousand you used to pay points. After that it is all savings. If you are going to stay in the home for a year then move, you will waste money. It will take you just over two years to make back that ten grand.

In the scenario we just went over, as long as the borrower is going to stay in the home more than two years, it would seem foolish not to buy down the rate using the discount points. Despite running numerous calculations for borrowers I would still find people so point adverse, that they would not entertain the notion of paying points.

That is really all I have to say regarding points and the mortgage industry. Bottom line, crunch the numbers and you will be able to see if you should be paying points or not. There is no hard fast rule as every loan and every borrower is different. Keep an open mind and do what makes best financial sense.

Good Luck and Happy Financing.

Compare the best mortgage rates.