The following article is provided by Bert Karrer with Countrywide
Wow! I have heard this question a few times in my career. Well here is the answer from my perspective.
Chairman Bernacke and his friends at the Federal Reserve are doing all they can to avert a possible recession in the US economy. On January 30th, the FED cut US short term rates anther .50% taking their benchmark rate to 3%. The FED has now cut rates by 1.25% in just 9 days and this represents the most aggressive FED rate cut since 1990. This did have a shock effect on the stock market and artificially kept stocks from plunging.
The FED’s move to the lower short term rates does not effect mortgage rate but is intended to keep us from entering into a recession in the 1st quarter, and they left the door open for further cuts over the next several months if they feel they are necessary.
Well, if you have a home equity line of credit based on Prime or short term, you should see an immediate reduction in your interest rate in the coming weeks. However, if you are considering a fixed rate loan or longer term ARM with a fixed period of 3, 5, 7 or 10 years, rates on those types of loans are not directly related to the Fed. Instead, these rates are closely tied to the Mortgage Backed Securities that trade on the bond market.
Since the FED cut their rates by 1.25%, mortgage rates nationwide have risen by about .375% as money continues to leave the bond market and go over to stocks. Good for your 401K or stock accounts, but not if you are trying to get the lowest mortgage rate. The fact that foreclosures have risen by over 75% over the past 12 months has also not helped mortgage rates as more risk is now being priced into rates.
While mortgage rates have moved notably higher over the past several weeks, I expect that the FED will have less and less impact on the markets and stocks will decline steadily over the next 60 days, and mortgage rates will go down as well. Look for the 30 fixed rates to be in the low to mid 5% range.
With all this in mind, it is more important than ever to work with a professional mortgage lender who can decipher market conditions and help you make informed decisions in today’s volatile market. A professional can look at FED decisions and economic reports that are coming out and help you make the right mortgage choices. Whether you have or are considering an ARM or a fixed rate loan; whether you are buying, selling or refinancing a home; whether you are dealing with a primary, vacation or investment property; now is the time to be dealing with an expert.
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