Is the news good or bad for rates?

Mortgage and Lending with January Financial

Line GraphSeptember was an exciting time. The kids were back in school. A hint of crisp weather was in the air. A plan was afoot within the government to purchase "toxic" mortgage-backed securities from Freddie Mac and Fannie Mae. Life was good.

The problem was, after Congress approved TARP (the Troubled Asset Relief Plan), the Fed changed its mind and went to bail out banks instead of the mortgage market. It seemed back to square one for anyone involved in the mortgage industry, whether as a professional or a consumer.

But have no fear, faithful readers, good news is afoot yet again! Last week, Henry Paulson approved another plan, very similar to the first, the aim of which is to help detox the poisoned environment of the mortgage market. Mortgage rates went a lot lower, allowing many people to refinance into better loans.

Rates are still good over a week later. Some reports are even surfacing of 30-year fixed mortgages available on purchase loans (not refinances) for 4.5%. These rates may even be available for jumbo loans (which are necessary in many areas of Southern California).

With all this good news, there is an inherent danger afoot: the desire to continue waiting for rates to drop even further. Many borrowers will decide that if rates are decreasing now, they will continue to decrease and it will be advantageous to wait it out. The problem is that the plan that would bring about these lower rates has not yet solidified, and many changes could still occur that could cause rates to change dramatically. Also, there's no guarantee that the change would be in favor of borrowers - rates might actually increase.

As always, our advice is to contact a trusted mortgage professional (like us!) whose job is to read the markets so as to best advise their clients for their individual situations. If you are considering a new home loan or changing an existing loan, please call us first to make sure your next move is the best one available.

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Comments (2)

Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

I do see some people who want to wait for the interest rates (or house values, for that matter) to be at their very lowest to make sure they are getting the very best deal. 

While I understand that, Mom prided herself in teaching us to be bargain shoppers, the problem is the same as it was with sellers when we were in a sellers' market.  How are you going to know when everything is at it's very lowest (or highest), and if you miss it, will you actually wind up in a worse position by waiting?

Dec 06, 2008 01:15 AM
Carey Pott
January Financial - Foothill Ranch, CA

Christine - it really is a gamble, isn't it? An old teacher of mine waited too long back in the 80's and lost millions on commercial properties - then acted too soon in the early 2000's and didn't earn nearly as much as he could have. I suppose it all just depends on how much risk people are willing to take on, and for the average borrower, that amounts to not very much risk!

Dec 11, 2008 06:25 AM