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The Low Interest Rates Won’t Last Forever

To everyone’s great relief, fixed mortgage rates have been extraordinarily low for the last year averaging between 4.75% - 5.25%.  However, perhaps you remember the summer of 2008?  Gas prices crested $4/gal, inflation was all the rage and home buyers were snapping up 6.5% mortgage rates like they were deals on last year’s golf balls at the new PGA Tour Superstore in Naples.

Then, the dam leaked. Banking fell apart, the economy went to the brink, and the Federal Reserve stepped in to clean up the mess. The Fed made many moves to heal the economy, but one of its most important ones was backstopping the mortgage-backed securities market to the tune of $1,250,000,000,000 (that’s $1.25 TRILLION folks!).  Visualize that for a minute. It's a huge number! The Fed used this money to become a big-time buyer of mortgage bonds to the tune of buying ~80% of ALL bonds being sold!  The goal?  Lower long term (15 and 30 year) rates and that is exactly what happened. 

Starting April 1, 2010, though, life goes back to normal. L The Fed is ending its monetary support (minutes for this week’s FOMC meeting) and the market will adjust according to prevailing market forces.  So this news is the very large elephant sitting in the corner of the room that everyone is trying to ignore.  Fact is however, most economists (and even most of the Fed governors) believe that without the Fed keeping rates artificially low, we’ll be seeing higher rates in the very near future. 

This news is worth shouting out to all of your customers still waiting to make that offer!  On a $400,000 loan, a 1% change in rates equates to $250/month and that’s not chickenfeed!!!  Mortgage rates are going up.  The question is "how soon until markets react?" For now, rates are great. Economic data is soft and inflation is tame. Plus, the dollar is rallying.  These are all conducive to low mortgage rates.  However, at some point, Wall Street will start pricing bonds for the Fed's exit.

Rate shoppers should really have a plan in place.  Be patient, but not too patient. Locking mortgages is a game of timing and, for that, people need help.  That’s why your Summit Mortgage Loan Officers are all well versed on this marketplace and are monitoring this developing story as it unfolds.  Pick up the phone and call us, our numbers are below this email.  You’ll be glad you did!

As always, your Summit team is here to help you. 

William Dukes

Senior Mortgage Banker

With more than 25 years of financial advising experience including 10 years in mortgage lending Will Dukes understands clients’ borrowing needs and concerns. More importantly, being a "survivor" in the current mortgage lending atmosphere speaks volumes about Will's integrity and ability to navigate rapidly changing conditions. If you have questions about finance contact Will at Summit Home Mortgage, Inc. 239.272.2241.