Rates to increase by 1% in 2010 as we say goodbye to $8,000
8/17/2009
Market- S&P was beat up with the DOW closing down 186 points and mortgage rates rates improved slightly, we are floating over night on all locks. This is a short term deal I believe and will keep my eyes for a quick switch and rates in be steadily increasing.
Question of the day/week/month/year!
Will rates go up/down and if so when…?
Will Homeowners and Buyers Lose $45,000?
Federal Reserve officials met last week and issued a statement saying that their program to purchase $1.25 trillion of mortgage-backed securities will be winding down by the end of year. If you have been an avid reader of my blog we all know that the Fed is the single largest buyer of mortgage bonds in the market today. The way mortgage companies set their interest rates is by figuring out the price that Fannie Mae and Freddie Mac are willing to pay them for the mortgage. Fannie and Freddie set their price by figuring out what investors on the bond market are willing to pay them for the Mortgage-Backed Securities (mortgage bonds) that they issue. When the Fed stops buying mortgage-backed securities, the demand for these bonds will be much less, and mortgage rates will go higher.
Since the Fed began purchasing mortgage bonds and intervening in the mortgage markets, interest rates on fixed rate mortgages have dropped a full percentage point below where they would be otherwise. Take out the Fed’s subsidy, and mortgage rates are likely to drift back up by at least one percent most analyst believe. A one percentage point increase in mortgage rates – from 5.25% to 6.25% – would cost an extra $127 per month and $45,730 in interest over the life of a $200,000 30 year mortgage. This is exactly what could happen in 2010 once the Fed stops buying mortgage bonds.
Fed officials have been signaling for some time that their unprecedented interventions in the mortgage markets may come to an end or even be reversed once the economy begins to improve. While I don’t believe the Fed will start selling mortgage bonds right away, I do believe that rates will start drifting higher in 2010 once the Fed stops purchasing mortgage bonds. After all, it’s not every day that the Fed spends a whopping $1.25 trillion to subsidize mortgage rates. If you don’t remember what 1 Trillion dollars is be sure to check out What a Trillion is all about?
If you take out this enormous subsidy, and the average person with a $200,000 mortgage who refinances or buys a house stands to lose $45,000 over the life of their home loan and not to mention first time homebuyers tax credit of $8,000 as well.
That is why homeowners and buyers should really talk to their Certified Mortgage Planner and take advantage of this window of opportunity to refinance or buy a home while rates are artificially low.
With my innovative software we can educate our borrowers on the benefits of each situation as well as identify utilizing the “buydown” strategy to pay less interest over time and ultimately own the home free and clear sooner.
If you or someone you know are interested in our free “TOTAL COST ANALYSIS” report its only minutes away.
Bill Black CMP
Branch Manager- Vancouver Branch
Loan Network LLC
Mortgage Banker
360.326.8891 Office
360.910.3290 Mobile
360.326.1861 Fax
My core business is based upon trust and honesty with it’s clients; we feel that this is the most important component of any business relationship. We constantly measure our business processes to ensure that our clients receive the highest level of service possible.
Wa #520-CL-49546
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