THE MAGICAL 4.5%

For some reason, 4.5% is a new buzz word when it comes to mortgage rates. I thought this was a good little Q&A from a mortgage broker I work with:

The media has been flooded with news of mortgage interest rates going to 4.5%.
I have had countless inquiries about this and wanted to send a little explanation of what really is happening in the world of rates.

First of all, interest rates HAVE improved significantly. Have we reached that magical 4.5% number everyone is talking about?
No, but top tier clients (740+ credit and 30% or more equity) are getting 4.875%.
The promise of 4.5% rates that we are all waiting for it needs to be examined in detail to fully understand why it is unlikely to happen solely based on the actions of the FED.

Didn’t the FED say they were going to lower rates to 4.5%?
The FED did not say that they would bring mortgage rates to 4.5%, in fact no one, not even the FED has the ability to set mortgage rates.
The FED simply said they would buy mortgage backed securities to help lower rates and keep them low.
The magical 4.5% number was simply an educated guess at the outcome of the actions of the FED.
This was a report that was flooded into homes across the country by the news media.

What IS the Fed Doing then?
The Fed Has been buying mortgage backed securities as they said they would.
However the ones they are buying are the 5.0% and 5.5% bonds which represent outstanding loans at 6-6.5%.
This is a smart move by the FED because these represent many of the loans that are currently being refinanced and will provide a quick return on the investment by the FED.
This will help in the short term to possibly keep rates from rising but it is really doing very little to push rates lower than they are currently.

So When Are Rates Going to Drop to 4.5%?
Without a crystal ball or a good set of tarot cards, it is hard to say if the rates will ever get to 4.5%.
Almost every day there is some kind of financial report released that effects the pricing of mortgage backed securities.
If something significant happens to push rates down, we could see them go lower but the same applies in reverse and it is just as likely that a piece of data could cause rates to increase.

Float, Lock, Wait?? What Now?
My advice to all of my clients right now is this, If something makes sense, don’t hold off and wait for a rate that may never come.
If you have found the right home, for the right price, don’t let it go just because you want to have a 4.5% rate rather than a 4.875% rate. It is not worth the risk.
If you are thinking of refinancing, I am always available to you as a resource.
Let me analyze your options and I will fully explain the benefits to you. The difference between 4.875% and 4.5% on a $200,000 loan is less than $45 per month.
If we can save $150 per month in your mortgage payment right now, is it really worth waiting for a rate that may never come just to save an additional $45?