So,
if interest rates are coming down, why aren't mine?
A
half dozen times this year the Federal Reserve Board has met to review
long-term interest rates, and each time they have lowered them.
"Great," say consumers. "That means the interest rate on a
home mortgage is dropping like a rock, too. Right?"
Unfortunately,
that's not the case. Long-term rates are tied to bonds, including Treasury
notes. As interest rates drop, the yields paid on bonds usually rise.
Thus, with a certain irony, it's possible that a cut in long-term rates
could actually cause mortgage interest to rise, to cover the cost of the
higher yields being paid.
Plus,
mortgage rates are already at their lowest point in the last two years.
With the Fed adjusting long-term rates so often, it's simply not
economically feasible for banks and credit unions to tie a 30-year
mortgage to a rate that could change again virtually overnight. Adjustable
rate mortgages (ARM) have seen the greatest downward movement, because
unlike fixed-rate loans they are tied to short-term interest rates.
Right
now, ARMs are very attractive. Of course, if the Fed's rate climbs in
response to inflation or other economic pressures, so will the rate you
pay on your adjustable mortgage.
The bottom line? Experts almost universally agree that right now is the
time to lock in a rate if you've been thinking of buying a home or
refinancing. Mortgage rates are probably about as low as they're going to
get, and chances are that waiting will cost you more.
No
one knows what the Fed will do next time they meet. But by acting now, you
can know for certain that you'll have a very attractive mortgage for as
long as you own your home.
-
Contributed by Bonnie Salem
Real Estate Product Marketing Manager from Hewlett Packard
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