Juicy Estates: Mortgage Blog

Is Uncle Sam Going To Give You A Mortgage At 4.5%?

The entire country is buzzing with the “news” that the Federal Government is going to intervene in the mortgage market to drive interest rates down to 4.5%.  Before you start waiting to make your decision to buy or refinance your South Florida home on the arrival of 4.5% interest rates you should examine a few facts.

 

 

1. The Treasury doesn’t set mortgage rates — Wall Street traders do.  Historically, rates are based on the Supply and Demand for mortgage-backed securities.
2. Treasury intervention doesn’t guarantee low rates.  
3. Zero details about the plan have been confirmed, quoting CNBC.  Everything you’ve heard about the program to drive down rates to 4.5% is a guess at this point.

Speculation about the program is that it would be for new purchases only and not for refinancing of existing mortgages.  Additionally this program would not have the desired immediate effect of  stemming the flood of foreclosures…..but lower rates can’t hurt!

If you look past each of the aforementioned points you will notice one very interesting fact.  10 year treasury yields are at their lowest point in more than 50 years.  The spread (also see credit spread)between 10 yr. Treasury yields and 30 year fixed mortgage rates has averaged about 1.6% (160 basis points) over the past 15 years but is currently about 2.75%  (275 basis points).  So this presents a very interesting situation.  Are Treasury yields artificially low?  Will mortgage rates come in line with Treasury yields or will Treasury yields rise to meet mortgage interest rates?  In my opinion they will in all likelihood meet somewhere in the middle.  Juicy low rates indeed.

Either way Jumbo and conforming mortgage interest rates remain at or near historic lows so if you are buying or refinancing that Mediterianian Coral Gables home or a new construction Pinecrest Mansion you will be saving for years to come.

This entry was posted on Thursday, December 4th, 2008 at 10:15 pm and is filed under Home, Mortgage News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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