It's All Good News for Mortgage Rates

In the late ‘80s, when I first started in the mortgage industry, my boss shared that he had the lowest interest rate ever on his mortgage. What could this impossibly low rate be? It was a 5.50 percent, 30-year fixed loan. 

I was stunned! What?! Where and how in the world did you manage to get such a low rate? That was my reaction. His wife worked for GMAC back then and was able to land this employee mortgage rate through a lottery. 

Talk about winning the lottery … this rate was almost just as good as winning the lottery. No, really. Back then, the rates we were selling to a perfect borrower were at 9.75 percent and a 10.99 APR for a 30-year mortgage.  So 5.50 percent was really nothing that I could ever dream about. Today 3.875 percent is available, and it looks like it may be here for a while.

Last week, the Federal Reserve's shocking announcement was very favorable for mortgage rates. The forecasts from officials for the fed funds rate contained some major surprises for investors. Fed officials now expect that economic conditions will allow the fed funds rate to remain at low levels until at least "late 2014."

Prior statements made by Fed officials extended the expected time frame only to mid-2013. Fed Chief Ben Bernanke also suggested that officials would like to see stronger economic growth, and they are open to the possibility of additional Fed easing. Many investors think it is likely that the Fed will announce additional mortgage backed securities (MBS) purchases at a later meeting. The expectation for a low fed funds rate and the possibility of additional Fed purchases of mortgage-backed securities increased demand for MBS last week, which resulted in higher MBS prices and lower mortgage rates. Oh yes!

We have seen low rates for the past three years. During this time, friends have asked me when they are ready to purchase or refinance if rates are low enough or if I think that they should wait. To this, my jaw always drops to the floor, and I look at them in dismay and ask… How low IS low? Rates have been incredibly low already so what are you waiting for, is my answer. 

The real question is, “How long do I think that these low rates are going to hold?”  Well, that question has been partly answered by the Fed last week. The other question that remains is if the mortgage rates are low, why aren’t more people buying and refinancing?

Yes, the mortgage rates are at historically low, but the economy has not fully recovered. This has banks really concerned, and as a result, programs and guidelines continue to be tailored to the AAA borrower only.  It is difficult to qualify for a loan, but it is more difficult as a homeowner to continue to meet that mortgage obligation every month during these tough economic times. So it is a balance, and as the economy recovers, then we will see banks ease up on their guidelines.

In the meantime if you are fortunate enough to qualify for a mortgage loan, then be confident that the rates are close to the lowest that we have seen in our lifetime.  

                      Posted National Rates This Week

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A couple of other factors are helping maintain low rates. We had a lot of growth in manufactured goods the last quarter of 2011, and they were expected to sell during the holidays. But didn’t. So experts believe that the GDP number was artificially inflated, and this may bring us a lower result this quarter. The situation in Europe is not likely to be fixed soon.  These are good factors for low rates, but if things change and the deal in Europe gets fixed, for example, then we may see mortgage rates move up. 

Happy mortgage hunting!