Will Interest Rates Go Lower? Yes, And Here Is Why.

Justin McHood

Will Interest Rates Go To 4.5%?

We have been asked that question often recently. Normally, when people ask us “what is going to happen with interest rates” we usually reply with “well, one of three things can happen:

  • They can go up,
  • They can go down, or…
  • They can stay the same.”

If you asked me the question today of “are interest rates going to go down?” my answer now is “yes, interest rates will go down in the near term and here is why…”

Interest Rates Will Go Lower

The Federal Reserve released implementation details on its previously announced program to purchase mortgage-backed securities. This is a drastic new step that the government has taken in an effort to keep mortgage rates low, which in theory will spur demand and help increase home sales numbers as well as provide some help to those homeowners who are currently struggling to make their house payment.

Only fixed-rate Mortgage Backed Securities that are guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae are eligible for purchase. Other products such as adjustable rate mortgages, jumbo loans, and structured bonds are excluded.

Purchases are expected to begin as soon as next week and up to $500 billion will be bought. This $500 billion is in addition to the current Treasury’s agency Mortgage Backed Securities purchase program which has been running at $20-25 billion in recent months.

$500 billion is a huge number — probably big enough to cover most of the 2009 mortgage backed securities agency supply for 2009 and so it is difficult for me to see how mortgage rates don’t go lower - possibly solidly into the 4% range that everyone seems to be talking about.

Will Mortgage Rates Go Lower?

Yes.

And I reserve the right to be wrong.

Right along with all of the other “experts” that you see on CNBC.

Happy New Year!

Last 5 posts in Mortgage Rates

January 1, 2009

Comments

22 Comments so far

  1. Jennifer Monastero

    Here’s to a fantastic, and hopefully stable, start to 2009! :)

    January 1, 2009

  2. Justin McHood

    @Jennifer - I will take just the “fantastic” part! Stable? I don’t know… man, I hope so.

    January 1, 2009

  3. Bill C.

    There are no experts at CNBC. Try Fox for honest journalism not opinion.

    January 6, 2009

  4. Justin McHood

    @Bill,

    Good point! Ok, I will make sure to make a note of that the next time I am in the “predicting mood”.

    Thanks for stopping by and commenting.

    Justin

    January 6, 2009

  5. Daniel

    Fox is NOT the place for honest journalism.

    But Justin, I think that we will see fluctuations up and down 4.5-5.5 percent in January or even into mid-February. However, the rate will begin to trend up to 6 percent.

    January 11, 2009

  6. Justin McHood

    @Daniel,

    Thanks for stopping by — I agree with you that rates will trend up AFTER going lower… I wonder if we will be right! Be sure to check back to this post in about May and time will tell if we called it right or not.

    Justin

    January 11, 2009

  7. Mark

    All you experts….instead of prediction why not explain the real mechanics that many of you dont know or forget to think about….Fannie/Freddie are just a re-packaging point for mortgage loans. Someone and isnt it sad for now its the government but ( investors) real people will eventually have to purchase them….So do you want to buy MBS with a higher or lower return on the market Mr. Investor…..? So folks that is why they are as low as its going to get….4.875% 0 points. Maybe a dip to 4.75 or 4.625. Not the Sheila B. FDIC blowhard’s 4.5%…Why? The market does not need it.

    Hey folks here is a novel idea? Why doesnt Fannie and Freddie buy mortgages from lenders based on the lenders performance in their existing portfolio’s? No its too easy and makes too much sense thats why?

    January 12, 2009

  8. renee

    I amg etting ready to refinance my home equity loan to 5.875%. Should I wait to see if rates go lower, or should I move forward? Current loan is at 6.75%, it willc os tme $300. thoughts?

    January 13, 2009

  9. Justin McHood

    @Renee,

    Thanks for stopping by and commenting.

    If your closing costs will be $300 and it will save you $100 each month then your “break-even” will be 3 months.

    Do the break-even calculation and if it is short enough (there is no exact number here - it is different for everyone), then yes, do it.

    And if rates continue to go down to 5% or 4% or 3% or whatever — and if it still only costs $300 in closing costs?

    Do it again!

    January 13, 2009

  10. renee

    Thank you. I will only save $52 a month. but that $52 a month will go directly to my first mortgage which will allow me to pay it off in 5 years instead of 6. Then I will apply most of what I was paying for that loan to the home equity note and pay it off early too. Yes I am disciplined so I will do that instead of blowing the extra funds on going out to dinner shopping.

    Since this is a home equity loan, rates don’t go as low as mrtgages. ALos, I am borrowing less than 100k which puts me at a disadvantage. It seems that the more you borrow, the lower your interest rate. Seems like it should be the other way around.

    January 13, 2009

  11. Justin McHood

    @Renee,

    My advice would be to “do it now”. Your break-even will be about 6 months and I think that it would be wise to take advantage of rates now while you can.

    Will rates move lower? Who knows.

    But saving $52/month now is something that you can “take to the bank” right now.

    Justin

    January 13, 2009

  12. regina

    renee who did you get your home equity loan with ,and was it fixed

    January 27, 2009

  13. Ryan

    Hey Justin,

    Quick question. I’m in the process of purchasing a condo in San Jose, CA and I’m utilizing funds from the City (i.e. first time home owners program) as well as $28k of my own money. Based on the fact that I’m using money from the city and buying from a brand new development, the lenders require that the developer sell 51% of the first phase before I can close.

    I’m told this will take anywhere from 4-6 months. Obviously I can’t lock in a rate for that period of time, so I’m wondering if you could provide any advice regarding how I should go about the loan process? Should I attempt to lock in a rate as soon as possible or do you still predict that rates will continue to decline.

    I appreciate the help!

    Thanks!

    February 20, 2009

  14. Justin McHood

    Ryan,

    Sorry for the delay. This got eaten-up in my spaghetti-bowl of an inbox for a couple of days.

    My recommendation is this:

    Don’t lock your loan any longer than 60 days maximum. That is generally the longest that most lenders will lock and not start to charge you fees that are probably not worth it.

    Will interest rates be lower or higher in 6 months?

    I don’t know for sure - but my best advice is to wait until you are about 30-60 days out before you lock. If I had to put my best guess in right now… I predict that they will be “about the same” as they are right now in 4-6 months.

    And I promise to give you a “money-back-guarantee” for whatever you just paid me for that advice!

    I’ll cross my fingers.

    Justin

    February 23, 2009

  15. Nina

    Hi,

    I’m about to refinance my mortgage/heloc ($155K) and the rate I’m getting is 4.931% with purchase of 1.275 points. I have the rate capped at 5.2% with possibility of one-time float-down… The rate’s been moving right around 4.8%-5% the whole time but I’m wondering if there’s any way to know if they will go down lower in the next week or so before my rate cap expires? Also, is there a website where general rates can be monitored? Tired of this rollercoaster ride.
    Thanks!

    February 25, 2009

  16. GARY

    I HAVE A 10 YEAR VARIABLE RATE BUSINESS LOAN OF 3.75%. I AM VERY CONCERNED OF HIGH INFLATION FOLLOWED BY HIGH INTEREST RATES. THE LOAN AMOUNT IS $278,000.00. I CAN LOCK THIS LOAN IN AT 6% NOW. SHOULD I LOCK IT IN OR WAIT?
    GARY

    June 9, 2009

  17. Justin McHood

    @Gary,

    I will keep this simple:

    Lock!

    That is my advice — worth every penny you paid for it!

    Justin

    June 9, 2009

  18. Brenna

    Hi Justin-

    I am buying a condo, and am going through the NJHMFA program. I wanted to lock in the IR of 5.5%, but it changed to 5.625% 4 days before I met with my lender to sign the docs! I didnt lock in the rate, I signed a floating rate doc, with hopes of it going back down. The construction of the condo will be finished mid February (estimated), do you advise I lock in the 5.625% now or take the cahnce that it will go back down after January 2010? Any advice would be great!

    June 19, 2009

  19. derek

    I read this discussion about rates from earlier this year…now we’re mid-June…any thoughts on rates for July and August 2009?
    Thanks,
    Derek

    June 24, 2009

  20. Jeffrey Olin

    I am holding out for a 4% Mortgage interest rate for Nassau County, New York. This may indeed be wishful thinking. My Mortgage interest in fixed at 5.8%. Would you be able to post Mortgage interests rate by day or month?

    July 18, 2009

  21. Jack Wu

    Where will be rates be heading in the next month? Thanks.

    September 17, 2009

  22. Londri

    Any predictions for rates next week?
    I’ll be in my 30 days window for locking my interest but seems like Fed is going to stop buying Mortgage Backed Securities soon …and rates will spike all of the sudden :-(

    Any suggestion?
    Thanks!!

    September 21, 2009

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