Will Interest Rates Drop?

By: EconomyWatch Content   Date: 6 November 2009

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After the mortgage rates reached their nearly five-year lows in 2009, the question that excited most borrowers is will interest rates drop further? Ben Bernanke, the chief of the US Fed, announced two crucial steps in March 2009 to make home loans more attractive. First, the US Fed announced its plan to buy up to $750 billion of Mortgage Backed Securities (MBS) supported by Fannie and Freddie Mac. The Fed has committed $500 billion already. Second, the Fed announced its decision to buy the debts of Fannie Mae and Freddie Mac worth $100 billion. These steps are expected to bring down the mortgage rates further.

Will Interest Rates Drop Further?

The moves by the US Fed have helped Fannie Mae and Freddie Mac in reducing their financing costs. The two government-backed institutions are expected to lower the interest rates due to the cost savings. Many economists believe that the mortgage rates might drop down to as low as 4.5%. While some analysts believe that the Fed’s decision can boost refinancing activities in the US housing market, other are skeptical because they believe the housing slump is due to low consumer confidence and weak labor market, rather than mortgage rates. Even Richard Moody, Mission Residential, does not expect a rebound in housing market anytime soon. However, most analysts are hopeful that the Fed’s decision will positively impact the housing market.

Will Interest Rates Drop - Qualifying for Low Mortgage Rates

 

Not all borrowers are expected to benefit from low mortgage rates, since banks have been raising the bar on lending standards for low-cost financing. According to Moody, buyers may need a FICO score of more than 720, with a down payment of at least 3.5%. Moody adds that borrowers looking to refinance their mortgages may also have to meet these standards.

When the rates in the housing market are attractive, borrowers might think, will interest rates drop further? Moody opines that these attractive rates might stay for sometime; so, one can begin the refinancing process, since too much of waiting may lead to lost opportunities!


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