Could Mortgage Rates Drop Even Lower in 2009?
You’ve probably heard the buzz over the lower interest rates available in the market today. All the major news sources are running articles on why rates dropped so dramatically. And, you don’t have to look far to see people taking advantage of the discount. Our own blogosphere buddy & neighbor Corey @ Baltimore Rowhouse just locked in at 5.00%. So the question is: Are we at the bottom? Or will rates go lower?
Government Program Could Further Lower Interest Rates
Interest rates dropped because the Federal Reserve announced plans to purchase up to $500 billion of mortgage-backed securities from Fannie Mae and Freddie Mac (the country’s largest mortgage backers and major contributors to the financial meltdown we experienced in October). Current published rates are averaging in the 5.5% range and in some cases for conventional loans with a high balance, high borrower credit score, and strong LTV ratio are as low as 5.125% with no points.
Even more exciting, there is news of potentially lower interest rates on the way. The federal government is considering spending an additional $50 billion to lower the rate on a 30-year mortgage to 4.5% by buying more mortgage-backed securities. The National Association of Realtors claims this would yield about 500,000 more home sales. It seems this plan was intentionally leaked to see what kind of reaction it would create.
What Do We Know for Sure?
The details of this new plan are in flux and noone knows what will happen for sure. What we do know is that the government is considering a plan that would push mortgage rates even lower. Since this is all out in the open, there are concerns that buyers and refinance customers might wait until the government acts. Of course, this could create an artificial slowdown in the market, so we expect the government will act sooner rather than later.
Will A Mortgage Capital Injection Work?
Certainly a large capital injection in the mortgage market will have the effect of lowering rates, so for many homeowners this will be a good thing in the short run. Of course, money can’t be created from nothing, so the overall inflationary effect could negate the benefit for the middle class.
For some owners, it will be a difficult time to refinance a mortgage even with the lure of lower rates. Banks are turning away risky borrowers because of falling home values, credit issues, and failing incomes. In fact, with many borrowers under water in their mortgage, they may not be able to take advantage of the new loan rates even with a great credit score and a good job because they have no equity in their home. A new lender won’t take them on because the risk is too great.
If you can take advantage of lower rates, now might be the time. I decided to start looking into refinancing our motgages. I’ll let you know how things turn out.
What do you think? Are you looking to buy your first home? Trying to refinance?
Image courtesy of woodleywonderworks
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5 Responses to Could Mortgage Rates Drop Even Lower in 2009?
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December 10th, 2008 11:05 am
I’m in the process of getting the best rate I can find for a refi, which will hopefully be 5% from my current lender (though their fees seem rather high). The offer on the table I have now is 5.125% from another company, and their fees are very low comparatively.
Lower rates for houses may end up harming us more in the long run. Yes there is a glut of available housing. Much of it is because people bought houses they couldn’t rightly afford, and because lenders were making idiotic loans. Both parties are to blame for that. Another major factor, one that doesn’t get too much attention, is that homebuilders shot themselves in the foot (ala Plexico Burress) by drastically over supplying the market. They kept building when the market was tanking because they were hoping to keep deals alive, had crews going, etc. The glut of houses needs to be worked off naturally, not through artifically low rates. And the best way to do this? Have prices lower naturally. All measures of housing prices show they are *still* elevated (just look at Case-Schiller for starters). We are not yet near the bottom. And making cheap money available again may only result in us replaying this scenario in 10 years.
December 11th, 2008 12:05 am
Chris – I think you’ve captured the housing situation well. And you’re right, artificially lowering rates may put us back in this situation again.
Right now, we’re targeting 4.75% fixed (either 15 or 30 year term) with no points and very low fees. If I can get that, we’ll refinance in a heartbeat. (So, if you lenders are watching this, feel free to contact me if you can do that. If you can’t, don’t bother
)
December 11th, 2008 12:24 am
I locked in at 5% today myself, no points, 30 year fixed. I “know a guy” who will do the closing for me at a great rate.
Hope you get your refi!
December 19th, 2008 12:52 am
We are about to sign off on a refi at – get this – 4.75 fixed/15 year (they even have 4.875 fixed/30year). This is thanx to a local credit union in South Florida (Tropical Financial).
January 16th, 2009 2:39 am
[...] has again become attractive to many homeowners. While none of us knows with certaintly where rates will go in 2009, anyone with an adjustable rate loan or a fixed rate loan with an interest rate at 5.75% or more [...]