Friday, March 20, 2009

Mortgage Rates are Likely at the Bottom

By buying back hundreds of billions in mortgage securities and treasury bonds, the Federal Reserve is doing everything it can to lower long-term interest rates. Consequently, mortgage rates on 30-year fixed-rate mortgages have recently averaged around 4.75% according to That is down from about 6% in mid-November.

The Fed began driving mortgage rates down last November when it announced plans to purchase a half trillion dollars of mortgage-backed securities within a year. That number has since expanded to $1.25 trillion dollars. The Fed is also buying back long-term Treasury bonds, whose pricing affects mortgage rates.

However, further declines are extremely unlikely because the mortgage-lending market has become less competitive lately, as hundreds of small banks and independent lenders have collapsed. As a result, less competition between lenders should reasonably lead to higher interest rates. Most market experts expect mortgage rates to hover between 4.75% and 5.5% for the rest of the year.

Many mortgage experts suggest now is the time to refinance. Until recently, 30-year fixed-rate mortgages hadn't been below 5% since the 1950s. Thus, if you have been waiting to refinance your home, now may be the time as large banks that are beginning to dominate the market will be looking for ways to boost their profit margins.

Speak to your financial professional to discuss whether a refinance is appropriate for your situation. As always, it is best to speak with an advisor who won't make a commission on your actions (a fee-only advisor) so can receive objective advice.

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