Here’s what we’ve been sharing with our/your clients! For those of you we are not yet working with, this is relevant information for you to communicate effectively to your clients… 

 

 

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. 

 

To put it in perspective: 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 fixed rate 30 year mortgage. This is exactly what could happen in 2010 once the Fed stops buying mortgage bonds.

 

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.

 

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 we don’t believe the Fed will start selling mortgage bonds right away, we 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.

 

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.

 

Let us help you, help your clients get off the fence!  The window of opportunity to buy and refinance is here!  It’s NOW!  While home prices and rates are “artificially low”.  Lower interest rates = more home affordability.

The Meredith Mortgage Team closes loans clean and on time!  We dazzle our clients with the best service in the mortgage business….hands down!

Advertisements