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Mortgage Rate Watch 2009

Mortgage rates aren’t easy to pin down. Different market forces affect them, and change them daily, and not all consumers are eligible for all rate programs. Homeowners looking to refinance and potential home buyers need to monitor interest rates to obtain the most advantageous program and payment schedule. But watching the financial markets and understanding changes in interest rates can be particularly daunting in 2009, as the recession and housing bubble collapse are affecting communities nation-wide.

What to look for in 2009

As you prepare to get or refinance a mortgage in 2009, here are the events and factors you should watch for. Be sure to consult a reliable mortgage professional before taking out any loan.
Rates could be good for several months: The average rate for 30-year fixed mortgages – the industry standard – in the nation was just 5.57% in December 2008. Most experts expect rates to hover in this neighborhood – 5.5% to 6% — for much of this year. On a $200,000 30-year loan, that’s a payment of $1,136 per month on a 5.5% loan, or $1,199 on a 6% loan.
The recession could help your rate: In one of the few positives of the recession, mortgage rates will likely hold steady or slightly drop as the nation works to move out of a recession. This is because the negative growth of our economy is eliminating any chance of inflation. Monitor rates to see if they gradually move down. If they start going up over a period of days or weeks, it might be time to lock your rate and obtain a loan.
The government could be getting involved: The new administration and Congress are creating proposals that could refinance millions of mortgages at extremely low rates. Troubles with Fannie Mae and Freddie Mac, combined with the looming troubles from “sub prime” mortgages that caused the housing collapse, have created a climate where the government needs to act to stave off any more economic troubles. Stay abreast of proposals and programs as they could affect you and your new loan.
The market hasn’t settled yet: While the “bubble” has burst, it’s not quite over. Housing market analysts are not in agreement as to whether the collapse is complete. The market could get worse before it gets better, which means banks might remain hesitant to lend money. Stay in contact with your lender to achieve the best possible program.
You’ll need more upfront: While there is good news about mortgage rates – likely staying low, no inflationary pressures – there is a downside: You’ll need more money when you apply for a mortgage. Borrowers with poor credit will need larger down payments, and cannot count on zero-down payment loans anymore.
It’s all about timing: Anyone thinking about refinancing should wait until their available refinance rate is at least 1 percentage point lower than their existing rate. For example, someone with a 6.25% loan can feel good about refinancing for 5.25% or less.
Know your score: Your FICO score, the number issued by credit-reporting companies that impacts the rate you receive from lenders, should be at least 740. Borrowers with FICO scores lower than that are considered high risk and might not receive a loan, or will receive one at a higher rate with added fees.
Do your homework: Not all lenders are the same, and each offers different programs. Consumers have to shop around and do research to ensure they are receiving the best loan at the best price.
Patience pays off: While it can be difficult, lenders are issuing new mortgages every day. Borrowers should work to improve their credit scores, monitor rates and determine the most advantageous programs and lenders. The bubble may have burst, but real estate remains one of the best investments available.