There have been many write-ups by the media recently about the proposed government intervention to drop fixed mortgage rates to 4.5%. 4.5% would be the lowest mortgage rates have been since the 1960's and would be sure to stoke the floundering housing market.
So what is the reason for this proposed rate reduction and is it for real? Mortgage rates today sit at the lowest levels we have seen in 2008, with 30 year fixed rates in the low-5%'s. Just a month ago, rates were well into the 6%'s. Rates dropped suddenly the week of Thanksgiving due to the Fed's announcement that they would buy up to $600 billion in mortgage-backed bonds and securities. This is a good thing for mortgage rates, and instilled confidence in mortgage bonds, leading to a staggering rally as rates plummeted rapidly. Mortgage applications went up over 100% that week.
The government saw this, and realized that lower rates were stimulating the economy. It started to sound like a good idea to continue to pump money into the bond market in an effort to drive rates down further.
How far down rates could go if further government intervention happens is impossible to know. The media hypes up the proposal as meaning rates will drop to 4.5%. The government can't specifically set rates at a certain percentage, but if they implement further action, rates will drop more. It could mean a low of 4.75%, 4.5%, or even lower, but to say specifically rates will be 4.5% is pure speculation and is inaccurate.
Another point to consider is that this proposal may not happen. Current rates are extremely low historically and are stimulating the economy as-is. Additionally, if the government does drive rates down, there could be increased lending standards, or restrictions for qualifying that will make it very difficult for borrowers to qualify. There is even talk that the lower rates may only be available for home buying, not for refinancing. If the artificial rate drop is government-driven, they could create a program such as the new Hope for Homeowners program or FHASecure that in theory is a great idea, but is extremely difficult for any real people to qualify for.
The bottom line is that you can never time the market, and rates are unbelievably low right now. It's a great time to explore your options on refinancing or buying a home. If you lock in now, our lenders will allow a one-time rate renegotiation if rates drop before you close on your transaction, so that will protect you in case the new government proposal does happen. You can never completely time the absolute market-bottom, and could miss out on the great opportunity this week if you wait for it.
