Mortgage Rates in 2008

In 2007, it was predicted that fixed-rate mortgages would remain at 6.7% to 6.8% throughout the year 2008. However, the rates on 30 year mortgages have risen to the highest level now and it is falling well below 6%. These lower rates have raised hopes that this will help spur a rebound in the battered housing industry. Mortgage rates have now become simple to enable the housing market to have its firm footing. The home loan mortgage rates have been lowered as a quick response to the recent decision of Federal Reserve (Fed) to cut interest rates. Mortgage and home buying markets felt a sigh of relief and respite, when Fed, for the second time within two months, cut the short term interest rates. The rate cut of Fed to 4.5% by a quarter points in an effort to forestall the apprehensions in the effects of mortgage loan, credit and housing markets in larger economy is leading US into further recession.

Presently Wall Street is expecting to make a correction in future for stabilizing the home market and Fed is using its monetary policy by anticipating economic slowdown in the coming year to steer clear the economy of any possible recession in the future. Under an expansionary policy, Fed attempts to solve unemployment in recession by reducing interest rates. The lowering of Fed funds rate has lead to increase in money supply in economy. Under a contradictory policy Fed tackles inflation by increasing the interest rates and this in turn has lead to decrease in money supply in economy thereby cooling a heated economy.

The interest rate cut may boost the economy thereby uplifting the morale of business, consumers, investors and the Wall Street. The lowering of home mortgage rates has provided the needed momentum of opportunities of home buyers to buy a home. In spite of warnings of economic corrections, economy is resilient, with foreclosures, increase in food costs, oil prices touching $ 100 per barrel, sub prime mortgages fiasco and lowering of real estate prices. After the rate cuts in Central Bank’s interest, Adjustable Rate Mortgages (in short, ‘ARM’) have fallen down. 5 year adjustable rate of mortgages average 5.89 % which is down from 6.08% average just a year ago. A 15 year fixed rate home loan averaged about 5.90% with last year; 15 year fixed rate averaged about 6.04%. The rate cuts have provided a good opportunity for home buyers to clinch the deals with low mortgage rates. This is also an opportune time for converting interest and ARMs into low fixed rate mortgage.

Economists feel that mortgage rates can even hit 7% or more. Federal Reserve has been making the consecutive increases in benchmark of short term interest rates thereby effecting improvements in the mortgage industry. The rise of interest rates has been made in anticipation of actions of Federal Reserve. Federal Reserve does not directly control mortgage industry there has been upward movement of mortgage rates. The national average for 30 year mortgage has increased to a highest level of 6.78%, since May, 2002. People who borrowed money under adjustable rate mortgages are more affected than the borrowers with fixed rates. The benefits of ARM is less now compared to a year back, with the narrowing gap between adjustable rates and fixed rates, thereby resulting in drastic reduction in overall savings in adjustable rate.

apply now