This Week In Mortgage & Real Estate: Interest Rates Drop, But How Low Will They Go?

how low will mortgage rates drop

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This Week In Mortgage & Real Estate:

Interest Rates Drop, But How Low Will They Go?

As we move ahead in another week in the ever changing mortgage and real estate market, we have many new events to consider. Perhaps the biggest story of this past week however, has been the drop in interest rates that we have seen on mortgages. Rates have dropped to their lowest rates in year

4.5% Interest Rates?

The buzz word this past week has been that of 4.5% interest rates, through possible government intervention. While the Federal Reserve has stepped up and said that they will purchase a large sum of Fannie Mae and Freddie Mac backed mortgages. And the treasury department has indicated that they would like to do something to keep interest rates low. We also know the following:

1) The Treasury doesn't set mortgage rates -- Wall Street traders do. Historically, rates are based on the Supply and Demand for mortgage-backed bonds.

2) Treasury intervention doesn't guarantee low rates. Mortgage Rates may rise and fall based on speculation, but the treasury cannot set a standard rate on long term mortgages.

3) No details about the plan have been confirmed. Meaning that everything you've heard about 4.5 percent rates is a guess at this point.

While the latest talk from the government has pushed interest rates lower on mortgages in the short term. There are no definitive plans or actions set

to back a 4.5% interest rate on long term mortgages. The market continues to change on a daily basis and we may see a new plan unfold in the near future. On the other hand, if information comes out that the talk of 4.5% interest rates is just that, and then rates may move higher.

More Cuts Coming To The Prime Rate?

The Prime Rate, which home equity loans are based upon, as well as many consumer credit cards, auto and consumer loans is currently set at 4%. It corresponds directly with the Federal Funds rate, set by the Federal Reserve, which sits at 1% currently. However, the market has currently priced in an 80% chance that the Federal Funds Rate will be cut by .75% during the next Fed Meeting on December 16 th. What overall effect this will have in the housing and lending market as a whole however is debatable, following a string of cuts this past year. Remember as well, that we have written many times before that Federal Reserve rate cuts do not necessarily mean lower interest rates and this will be something to keep in mind as we mull the latest moves from the Fed and the Treasury.

For more information on changes that may affect you as a homeowner, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: or online at

By Bill Kamboukos Mortgage and Lending with Strategic Mortgage NMLS#160440-

Posted on December 08, 2008 05:55 PM


Category: Credit

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