Could mortgage interest rates go lower than they are at today?

Question

At 6.2% apr the payments are going to be higher for the house where as with slight decrease in the rate I could afford a better home with same or lower payments. How can the monthly payments be at a lower rate?

Answer 1

6.25 APR is the simple rate plus cost of the loan over the loan term. Simple rate is more like 5.875 with some lenders currently offering 5.75 at par. There has been some movement in rates the last few weeks up and down/ with avg. sway around .125 to .25 bps.

Yes, we are clearly still in one of the best rate environments the last 35 years yet an increase by more than .375 up or down this quarter is unlikely to happen. Contrary to popular belief, mortgage rates are based by mortgage-backed securities and not the fed or the 10yr bond (now, there are factors that are considered, such as un-employment and housing starts). While Fannie Mae, Freddie Mac as well a several Wall Street firm have all taken losses (some huge) the outlook is still positive.

You may consider an I/O if certain disciplines are met. I do not believe a person should ever use an I/O to qualify for a home they cannot afford. If however, you qualify for the full PITI payment, than an I/O may not be a bad idea. You would use the I/O for lean times and make the full PITI payment when able. This does take discipline on you part.

Here is an example based on a purchase price of 350k with note rate of 6.25 I/O @100%. 350k loan @ 6.25 = 2155.01 PI (1822.92 is Interest / 332.09 is principle) after 5 yrs you will have a balance remaining of 326,680.36 or 23,320 in principle reduction.

I/O scenario: 350k loan at 6.25 I/O = 1822.92 @ 100%. After 5 years, your balance remaining is 350k or 19,925 less payments. Here is where discipline come into play, what if you used that 19,925 to pay off credit cards, high interest debts, or used 332.09 monthly to fund an investment account? With an I/O properly managed, you could even pay 200 toward principle reduction and 100 extra towards your other high cost debt. Just some ideas..some will agree some won't. Talk to a professional and come up with a good game plan.

FYI: The average 30-year fixed mortgage rate fell from 6.34% to 6.28% over the seven-day period ended Feb. 8, according to Freddie Mac's Primary Mortgage Market Survey.
Freddie Mac Primary Mortgage Market Survey
(Seven Days Ending Feb. 8, 2007)

Source: Freddie Mac
The average 15-year fixed mortgage rate fell from 6.06% to 6.02%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages declined from 6.04% to 5.99%, and the average rate for one-year Treasury-indexed ARMs decreased from 5.54% to 5.49%, Freddie Mac reported. Fees and points averaged 0.3 of a point for fixed-rate mortgages, 0.4 of a point for hybrid ARMs, and 0.7 of a point for one-year ARMs. "News of moderate employment gains in January led to a halt in the recent upward trend of interest rate movements," said Frank Nothaft, Freddie Mac's chief economist. "The 111,000 jobs added last month were fewer than had been anticipated, while the unemployment rate edged up unexpectedly." A year ago, the average 30-year and 15-year fixed rates were 6.24% and 5.83%, respectively, and the average hybrid and one-year ARM rates were 5.89% and 5.34%, respectively, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

Answer 2

As of today, with what the Federal Reserve is saying, we're unlikely to see any drastic drops. We are still in the 35-year low range right now, historically rates are still fantastic.

All you can do is take what's available today that you can afford, today. Avoid exotic products like 40 year terms and interest only, unless it's the only way to get the house, and you're expecting future income increases.

Answer 3

I am with the crowd betting against a decrease.

Make the offer you can afford on the slightly better house. You may not get teh first you offer on, but you will find a taker. A friend of mine recently got one for 85k less then it appraised at.

YOu are better off simply looking for more house then less interest.

Answer 4

I expect that they will stay pretty low until after the next presidential election. Typically when a democrat is president interest rates go up as do taxes. Both are means of generating revenue.

Answer 5

I would bet no, in fact with all the defaults the bank are alredy make it a lot harder to get a mortgage. I would bet that in two to three years the rate will incress to about 9.5% to cover all the bad loans.
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