Good Information to Know about Interest Rates:

Last chance to refinance below 5%

By Les Christie, staff writerJanuary 7, 2010: 9:25 AM ET NEW YORK (CNNMoney.com) —

If you want to refinance your mortgage into a loan with a sub-5% interest rate, better hurry. Your window of opportunity is closing fast. Lenders are still advertising rock-bottom interest rates, but for most borrowers, rates are rapidly rising into the 5%-plus category. During the week of Dec. 31, the average 30-year, fixed-rate loan closed at 5.14%, according to mortgage giant Freddie Mac. That is significantly higher than the 4.71% it averaged at the beginning of the month, and experts say rates will go higher yet. “Interest rates are up and they’re not going to go down below 5% again,” said Mark Zandi, chief economist for Moody’s Economy.com, not for a while at least. While homebuyers are still excited about these low mortgage rates, people who already have a loan and want to lower their costs are scrambling to lock in. Refinancers act when the difference between the rate they’re currently paying and the new one is at least a point or two wide, otherwise the costs of going through the refinancing wipes out any savings. In fact as rates rose in December, refinancings plunged, down more than 30%, according to the Mortgage Bankers Association. A big reason for the jump is that a government program that has kept rates very low is winding to a close. The Federal Reserve has been purchasing mortgage-backed securities since early 2009, scooping up as much as $1.25 trillion worth. That has dampened rate increases by providing a ready market for the securities. But the Fed’s program lapses on March 31, when it cedes the playing field to private investors, who will almost surely demand higher rates. The Fed has already been slowing its purchasing, and that has corresponded with the recent rate increases. As Treasurys go . . . Not just mortgage rates have turned north. Treasury yields have as well, another indication that mortgage rates are headed skyward. The yield on the benchmark 10-year Treasury has grown steeply over the past few weeks. It stood at 3.2% at the beginning of December and has soared to 3.84% as of Tuesday, a 20% jump. Mortgage interest does not track Treasury yields in lockstep, but the two tend to mirror each other’s movements. Mortgage securities rates are always higher than Treasury yields because investors demand a premium above practically risk-free Treasurys. The difference between mortgage rates and Treasury yields is usually somewhere near 1.7 percentage points, according to Keith Gumbinger of HSH Associated, a publisher of mortgage information. The current spread of about 1.2 percentage points is quite narrow. That’s bound to change, according to David Crowe, chief economist for the National Association of Home Builders. He believes mortgage rates will go up to about 5.5% by late summer. But other factors could push them into a larger-than-expected jump. Economy bouncing back For example, as the economy improves (it’s hoped), businesses will expand production, hire new workers and open new sales outlets. All that requires borrowing in capital markets and the demand for lending will expand interest rates of all kinds. A recovering economy also boosts corporate profits, making stocks a better bet for investors. “Stocks tend to do better when the economy improves,” said Stuart Hoffman, chief economist for PNC Financial Services. “Mortgage rates will rise to attract investment.” Hoffman’s forecast is for rates to stay quite constant the rest of the winter and then elevate gradually during the spring buying season, the busiest time of year for home sales. He said they should hit about 5.5% by the end of June. After that, the increases will slow, according to Hoffman, but still approach 6% toward the end of the year. He believes they’ll cap at around 5.75% and are not likely to fall back to the 5% level again.

— Thanks to Kevin Brookes at Southern Trust Mortgage for sending me this helpful article! You can click on his name to access his website and information. Thanks Kevin 🙂

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The Fed has announced a major expansion of its mortgage-backed security purchase program by $750 Billion.

Thought you’d find this interesting. We’ll have to see how the mortgage rates react to this news:

For immediate release

Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract.  Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending.  Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment.  U.S. exports have slumped as a number of major trading partners have also fallen into recession.  Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued.  Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability.  The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.  To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.  Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.  The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets.  The Committee will continue to carefully monitor the size and composition of the Federal Reserve’s balance sheet in light of evolving financial and economic developments

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.