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What’s Up with Mortgage Rates?

I’m sure most of you are aware that the Feds have been busy cutting the federal funds and prime interest rates. Since then, I’ve had a LOT of calls asking where mortgage rates are right now. I think most of you expect mortgage rates to follow the prime rate.

In fact, right after the last Fed rate cut, we did see mortgage rates drop to 5% for a 30 year fixed rate loan. Unfortunately, that rate lasted about 1 hour, then rates began to increase ( 3 times that same day and 4 more times the following day.) Rates have been extremely volatile since then. Unfortunately, rates have been going up more than going down lately.

There are many factors that affect mortgage rates. The prime rate is just one small part of the equation, and unfortunately, the smallest, least significant part.

The sad truth is that Mortgage rates, like almost every part of our economy, is, to some extent, driven by competition. Unfortunately, much of the competition went out of business last year. The end result is that the big players left in the mortgage industry, don’t have to cut rates as much to keep very busy.

Mortgage rates are mostly driven by the interest rate yield on 10 year Treasury bonds.

To some extent, mortgage rates are also determined by the rate Fannie Mae and Freddie Mac have to pay banks to borrow funds.

This is a pretty complicated business.

We are hoping for another rate cut by the feds SOON! Let’s keep our fingers crossed that mortgage rates will fall again with the rate cut. And—again, if you want to be on my rate watch list, please let me know as soon as possible.

 Friday, February 29, 2008

This week, we're finally seeing Mortgage rates falling a bit.

Yay!!! 

30 year fixed rate loans are finally below 6% again, for the first time in weeks.  But the other very significant thing of note is that we are again seeing huge spreads between ARM loans and fixed rate loans

As of today, you can get a 5/1 ARM at 5.125% or a 10 year ARM at 5.5%!  Should you get an Adjustable Rate Mortgage, when all we've been hearing lately is how dangerous this is?  This depends on your time frame.  If you are pretty sure that you will NOT be in your house for more than 5-10 years, then why pay the higher rates for a 30 year fixed rate mortgage?  I know I don't like giving money away - do you? 

However, if you're not sure of your time horizon, then you might wait a little longer to see if mortgage rates do drop to that low 5% range we all loved to see a few years ago.  It could come back.  Let's keep our fingers crossed - and if you want to be notified when this happens, make sure I have your contact information (especially email address) so I can get word off to you immediately.