Interest Rates Come Crashing Down!

The Federal Reserve hit the panic button on January 22, and lowered the Fed funds rate by ¾ of a point. On top of that, many economists expect another rate cut of ½ a point at the Fed meeting at the end of January. The fear is that the housing market is leading/ has led the nation into a recession. The rate cuts are intended to reduce borrowing costs so that more money will be available to buy new stuff rather than pay interest costs. The other intended consequence is to help the banks lose less money. The Fed Funds Rate at 3.5% is the cost that member banks charge each other for overnight borrowing. The banks then loan the same money out at prime rate-or better- at (currently) 6.5%. That’s an 85% mark up on their costs. The banks’ losses should be reduced with a profit margin of that!

Now, as usual, what does this mean to you? Home Equity Lines of Credit (HELOC) interest rates will be coming down immediately. HELOCs are usually based on that 6.5% prime rate. Adjustable rate home loans will begin to come down as the rate cuts begin to filter into the various indexes that they are based on. Most of these ARMs are currently in the mid 7% range, so expect them to come down to the mid 6%. This is a BIG drop for those people who bought into the adjustables over the last few years and should help mitigate some of the current foreclosures.

Now, if you have become tired of the adjustable rate roller coaster, conforming 30 year fixed rates with no points have dropped into the upper 5% range. If you are thinking about buying a home, second home, or rental property now is the time to act. We may be at that unique cross roads where property values are down AND interest rates are down at the same time AND mortgage lenders are hungry to make loans.

Fixed rates for conforming loans (under $417,000) as of 1/24/08 (p.m.) are:
Rates quoted are for 0 point loans reduce rates about ¼% for 1 point in fee.
30 year fixed: 5.875% (APR 5.94%) payments are $2,466.71/mo
15 year fixed: 5.5% (APR 5.62%) payments are $3,497.24/mo.

LOAN LIMITS MAY BE CHANGING!

The proposed stimulus package making its way through congress includes a provision for conforming loan limits (currently at $417,000) to rise to as much as $725,000 for certain areas. New loan limits would be based off of median prices in the region rather than nationally based. The current proposal is certain to change and I'll post more as it becomes available.