Happy Holidays – Mortgage Rates Plunge

Finally, some good news for the mortgage industry! In a move to increase credit availability, the Federal Reserve and Federal Home Loan Banks announced that they would purchase up to $600 billion in mortgage-backed securities, exciting news that sent interest rates for owner-occupied, 30-year fixed-rate mortgages plummeting below 5.00%* and near the lows for the year!

If you have been on the fence about buying or refinancing a home, now is the time to act. Interest rates are extremely low and home prices in some areas are at 2003-2004 levels. Add to that recent declines in energy prices and lower consumer interest rates, and you have a great holiday recipe for success.

Understanding What Causes Interest Rate Movement

The Federal Reserve constantly evaluates the US economy and, when necessary, takes steps to address inflationary concerns and avoid economic recession or depression. The mass media, in turn, reacts by providing a wide range of opinions and interpretations of the Fed’s monetary policy. This can make it very difficult for consumers to decipher how such actions will influence interest rates in general and mortgages in particular.

And although actions of the Federal Reserve can have a direct impact on the Prime rate, mortgage interest rates are dictated by the trading of mortgage-backed securities, which are similar to bonds and trade on a daily basis. This means that the real dynamic at the heart of interest rate movement is the competitive relationship between stocks and bonds.

Stocks, bonds, and mortgage-backed securities compete for the same investment dollars on a daily basis. There is literally only so much money to be invested. When the Federal Reserve feels that interest rates need to be decreased in an effort to stimulate the economy, this reduction in rates can often cause a stock market rally. When the market becomes bullish, the money to invest in stocks comes from the selling off of other investments, including mortgage-backed securities. Unfortunately, when mortgage-backed securities are sold off to fuel stock market rallies, this causes interest rates to go up, not down.

The daily ebb and flow of money is what matters most when it comes to the movement of mortgage interest rates. I make it a point to continuously monitor interest rates for my clients and advise them of opportunities to manage their mortgage debt at a better rate. This is the foundation of my business as a trusted advisor.

If it’s been 12 months or longer since you last reviewed your mortgage, please call me. We’ll analyze your financial situation together and determine if there are any opportunities for you now.

*Based on loan amount of $320,000.00, loan-to-value of 80%, APR of 5.133%, monthly payments of $1717.83, and estimated taxes and insurance of $350.00. Subject to approval of credit.