The Pros and Cons of the 4.5% 30 Year Interest Rate!

Mortgage and Lending with Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 NMLS ID# 158606

Let me first say that I'm not a negative person.  Rather, I'm probably the most positive person that I know....Therefore what I'm about to say does not reflect an angry bitter person, but someone who has sat back and analyzed this 4.5% 30 year fixed rate that everyone's talking about.  Let me say that I'll conclude with some positive advice for all the young bucks in real estate that want to make this a positive.  Let's start with some of the facts.

1)  Last week there's an announcement that there may be a 4.5% 30 year fixed rate.  Here's the deal.  We don't know much about it.  We know that the target is first time homebuyers and that IF it comes out, we just don't know when, for how long and what the terms are.  There are thoughts that the government will buy the rates down to 4.5% for first time homebuyers.  We're not sure if that rate will be fixed or a temporary buy down of that rate.  There's been a lot of banter about both.  If the rate drops to 4.5% on a temporary basis, we may be recreating the whole mortgage default situation again when the temporary buy down expires. 

2)  The government, in another vein, stated that it may buy up all the mortgage backed securities (MBS's).  The purpose of this would be to strengthen MBS's.  This has been a favorite investment of hedge funds throughout the world until the whole mortgage crisis.  What was once viewed upon as one of the strongest platforms throughout the world has dropped attraction because of the mortgage fallout.  The mid east and China have quit buying them.  THAT'S A HUGE PROBLEM.  So buy having the government buying or backing the MBS's we'd see this become a strong asset.  A great biproduct would be that it should drive the 30 year rate down below 5% on it's own merits.  In other words, this has nothing to do with the 4.5% rate for first time homebuyers.

Items number 1 and 2 are separate but both being talked about in the same vein.  This is huge opportunity, but means that there is so much confusion.  So what's the negative about all this?  Here you go.

1)  We don't know when and if either will happen.

2)  We don't know if the 4.5% 30 year fixed rate is permanent or temporary.  We do know that it's for first time homebuyers (in its current stage right now). 

3)  Buyers and refinancers think that the 4.5% is for them.  It probably isn't unless they're a first time homebuyer.  Further, when will the program be rolled out and what are the terms, and finally....WILL IT EVEN HAPPEN?????

4)  People think that this is imminent an therefore may hold off refinancing even though a refinance today would benefit them greatly.  They're passing on something good to HOPE for something better.  They're basing this decision on facts that they're not aware of.

Soooooooooooo anywho..... What is the positive on something like this?  Here you go.

1)  Contact your current clients and offer to do a mortgage analysis.  If the client refinances, great, but if not, make sure that your inner circle is well prepared the rate may drop sharply and soon.  Reconnect with your A+ clients and tell them that it will be a mad house, but as a preferred client they will have first shot at a great refinance.  Despite the chaos, they'll be protected.  GET YOUR A's IN LINE.  No matter what happens, you become the source of information as a trusted advisor.  THIS IS HUGE. 

2)  As I've called my client database to prep them, some of them said why wait....let's take advantage of a good thing. you're connecting and informing your database, you'll find opportunity and revenue now.

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  1. Shirley Parks 12/14/2008 01:19 PM
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Ron Tarvin
Residential, Investment properties, rehab projects, property management, luxury homes, new construction! - Katy, TX
Broker, Katy, Houston, Cypress 77450,77494,77095

I think that speculation about this from the various sources HURTS the housing market.  If people are ready, willing and able to buy but are hesitant due to this possible "under 5% rate" that I keep hearing bantered about (and not just for first time buyers but anyone), this stagnates the market as people continue to wait and hope that they get the best deal...the best terms.


Dec 10, 2008 03:28 AM #1
Hope Goss
Ventura Property Shoppe - Ventura, CA
Ventura Real Estate

Well, it will be interesting to see how all this progresses.  I think most of our real buyers, and past clients are smart enough to take advantage of something beneficial for themselves without waiting for pie in the sky promises.

Dec 10, 2008 03:36 AM #2
Jason Sardi
Auto & Home & Life Insurance throughout North Carolina - Charlotte, NC
Your Agent for Life

Larry - Excellent overview in my book.  I'm going to flag this sucker as it deserves a lot of attention.  Folks need to be exposed to the realities and the 'what ifs' and know the difference.  And there's few substitutes for preparation.

Dec 10, 2008 03:39 AM #3
Stephen Kappre
KW Hometown - Mantua, NJ
Helping You Home

Excellent #2 point. we may see 4.5% without the special program.

Dec 10, 2008 04:20 AM #4
Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

one of the things I see is that if the 4.5% were to happen, and if it were to be successful, it might actually drive housing prices up... negating the effect for buyers.  The lower rate and higher price would cancel each other out.  And it this is really only for first time buyer, then people that are otherwise in the market might be damaged by waiting for it.

Dec 10, 2008 07:05 AM #5
Fran Gaspari
Patriot Land Transfer, Inc. - Limerick, PA
"The Title Man" - Title Insurance - PA & NJ


I've rarely seen a time in over 35 years of observation when 'waiting' was good advice...selling, maybe...refinancing...hurry!!!  Thanks,   Fran

Dec 10, 2008 08:48 AM #6
James Wexler - Scottsdale, AZ

there is not question that lower interest rates will get everyone excited about Re-Fi and purchase, but with homes underwater re-fi is very hard and large down payment requirement for purchase making it even harder, I dont know how much it will help

Dec 13, 2008 12:58 AM #7
Judy Greenberg
Coldwell Banker Long Grove - Buffalo Grove, IL
Coldwell Banker - Buffalo Grove - Long Grove Homes

Larry, I agree with you... if there is a good opportunity now, you don't have to wait.  You never know what tomorrow will bring...

Dec 15, 2008 11:10 PM #8
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Larry Bettag

Vice-President of National Production
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