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Loan Option Comes at a High Price

May 16, 1999

In his May 9 column, "New Loan Rate Can Only Drop," Kenneth Harney waits until the penultimate paragraph to point out the cost of this new loan program: It carries a higher interest rate than standard loans.

Maybe that seems to be an insignificant point to Harney, but to the typical borrower, paying an additional $500 or so annually in extra interest for the privilege of receiving a "free refinance" should rates fall significantly is a questionable proposition.

Also, the threshold for being eligible to take advantage of a rate reduction is stated as being when the borrower's rate becomes as little as one-half to three-quarters of a percentage point above the current market rate.

Using the average interest rates, that seems to indicate that 30-year fixed rates would have to fall to the 5 3/4% to 6% range before borrowers would receive any benefit whatsoever. Does that seem likely?

Despite Harney's claim that "on-time [mortgage] payments [are] the sole requirement," it would appear that there really is no free lunch after all.

SCOTT MYRE

Thousand Oaks

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