The Fed gave consumers an early Christmas present at their meeting yesterday. In an unprecedented move, they dropped short term rates down to a range of 0 to.25%. The Fed was expected to cut rates by a half a point, leaving some ammunition for future action. Instead, they went bold and cut the rates effectively to zero. This was a surprise, and an indication of how soft our economy is. But the real gift to consumers was the statement that went along with the rate cut. The Fed had already started a program of buying back mortgage backed securities and other long term obligations. In their statement yesterday they announced that they were going to expand that program and buy back more mortgage bonds, and do “whatever is necessary” to get the economy moving again.

Both the stock and mortgage backed securities markets rallied on the news, and mortgage interest rates dropped and are at their lowest level in decades.

So how will this news affect you as a consumer?

• If you have money in a savings account or money market fund, your return is 0%. Nothing. After expenses some funds may charge you for parking your money there.
• If you have a Home Equity Loan or credit card debt which floats with prime rate, your rate and costs will drop.
• If you own a home and have a mortgage, chances are refinancing your mortgage will save you money.
• If you are looking to buy a home, the lower mortgage rates just gave you the equivalent of a pay raise (As a first time home buyer you are also eligible for the $7,500 tax credit – this means a big pay raise).

The Fed’s goal is to make mortgages affordable and get the credit markets flowing again. Mortgage rates were low before, they are now unbelievably low. This means that even those who closed with historically low mortgage rates before, may have a chance to save money by refinancing again. The question I’m getting now is, how long will the low rates last? In their statement the Fed said they intend to keep rates low for an extended period of time. Some people think that with the rates this low and all the money being pumped into the economy, that we are setting the stage for inflation and higher interest rates down the line. That may be the case, but we are looking at least two years before that will happen. The economy is in a deep hole now, and the top priority is to fill the hole before we all fall into it. I don’t expect mortgage rates to rise soon, but there are still a lot of reasons to take advantage of the low rates now rather than waiting to see if they get even better:

• With home prices still spiraling down, we are seeing more appraisal value issues. The lowest home prices of the year usually happen in the winter months when fewer home buyers are out looking and the sellers are the most motivated. Any sales now will be comps tomorrow. If the value is too low this will hurt your chances of refinancing to a better rate.
• Mortgage guidelines continue to change. Even as the Fed tries to make mortgages more affordable, lenders continue to tighten their guidelines. If you can accomplish what you need to now, it probably doesn’t pay to wait.
• You know the old saying about a bird in the hand. No one knows what will happen to rates or when the low will be. If you are saving money now, it is worth doing. Most of the refinances we are doing now are no cost refinances where you are not paying any bank fees or closing costs. If the rates drop lower you can always refinance again without losing any money.

If you are thinking of refinancing or would like to see how a refinance would benefit you, or if or if you are getting ready to start looking at houses to buy, give me a call and I will let you know what we can do to help. And we should all be thankful that Ben Bernanke decided to play Santa this year.

Illinois Home Mortgage Rates and News             First time home buyer loans

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