How Low Will Rates Go? Maybe Not as Low as People Expect

I'm hearing many borrowers argue against buying a home or locking a
refinance by saying "I am waiting and holding for 4.5%"...but here's one
reason we may not get there.  Yes, the Fed has been buying Mortgage Bonds,
but if you look at what they are purchasing, they are buying a lot of FNMA
30-yr 5.5% and 5.0% Bonds, which won't have much of a positive effect on
present rates. 

Why is the Fed buying these Bonds?  Well if you think about it, it's very
smart of the Fed...and maybe even a little sneaky...because 5.5% Bonds
actually represent outstanding mortgages with rates of 6 - 6.50%, which are
precisely the loans being refinanced today.  

So many of the mortgages in the FNMA 5.5% pools will be refinanced and paid,
thus giving the Fed a quick recoup on some of their investment.  And this is
likely a big reason why the Fed said yesterday they could continue this
purchasing program beyond June, if necessary.  So the Fed buying higher rate
coupons will not necessarily get rates to 4.5%, but it should put a ceiling
on how high rates can go during the near term. 

The bottom line is the rate range we are in today is the lowest in 50 years.
Rates won't stay here forever and many experts expect them to rise as we
move into summer. Every 1% increase in rate will cost a buyer as much as a
10% increase in the purchase price. For anyone thinking about buying or
refinancing a home, now is the time to get serious. Waiting for that 4.5%
or 4% rate could cost a bundle.

If you have any questions about this confusing market please feel free to
contact me. I'm happy to help.

Theron Wall, Sr. Mortgage Consultant
Certified Mortgage Planning Specialist

Wallick & Volk Mortgage Lending
3615 Crossings Dr, Ste A
Prescott, AZ 86305
Cell (928) 533-7473
Office (928) 778-7167
Fax (928) 445-5308