Yesterday the Federal Reserve announced a $500 billion commitment to purchase mortgage back securities (MBS) and a $100 billion commitment to purchase debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks. This infusion of capital into the mortgage market caused the average 30-year mortgage rate to drop to the lowest rates in years.
I have seen estimates that the 30-year mortgage rate will be at 5.5% today and BestInfo, Inc., a Dover, Vermont-based mortgage data company, predicted today’s rate would be 4.875%.
Current Mortgage Rates Have Huge Impact On Home Values
To fully appreciate what this mortgage rate drop means to a typical Tallahassee family, let’s take a look at how the payment on a 30-year mortgage of $200,000 changes with different mortgage interest rates:
| Description | Rate | Monthly Payment | 6 Years Payments |
| Historical Rate | 9.000% | ($1,609.25) | ($115,865.66) |
| Mid November Rate | 6.200% | ($1,224.94) | ($88,195.53) |
| BankRate | 5.500% | ($1,135.58) | ($81,761.62) |
| BestInfo | 4.875% | ($1,058.42) | ($76,205.98) |
As you can see, the rate drop (using the rate from Bestinfo) could change total mortgage payments on a $200,000 loan by over $12,000 in just six years. Additionally, look what would happen if rates went back up to their traditional levels (9%), an increase of nearly $30,000 over the same 6 years.
Low Mortgage Rates Will Bring More Refinancing And More Home Sales
The reason that the Fed made this move was to stimulate the mortgage market by purchasing the securities issued by Fannie etc. which in turn use proceeds to buy mortgages for themselves or make loans to banks. This will provide the market with liquidity after several tumultuous months.
The last time rates plunged (January 2008), we saw rates hit 5.5% but literally jumped back up into the 6’s before the end of the same day. If you are thinking about a new loan, call your mortgage lender first-thing this morning!
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{ 2 comments… read them below or add one }
Great Post Joe. It looks like we may continue to see these low rates through the end of the year.
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Deborah
http://termlifeinsurance2.com