Interest Rates Drop Below 6%
Sparked by the news that the federal government will be bailing out Fannie Mae and Freddie Mac, interest rates on a wide range of mortgage products declined considerably. For the first time in months the 30-year fixed rate is below 6% again.
How is this all connected? Fannie and Freddie will be permitted to expand their direct investments in mortgage-backed securities from $1.5 trillion to $1.7 trillion over the next year. With the government standing behind their debts, investors are also expected to be more willing to buy mortgage-backed securities guaranteed by Fannie and Freddie. As demand for such securities picks up, all else being equal, prices will rise – essentially lowering the yield.That could push the rate for a 30-year fixed-rate conforming mortgage down from 6.35 percent last week to “well below” 6 percent, according to Mark Zandi, chief economist at Moody’s Economy.com.
Rates are already coming down to around 6 percent today, but it will take 30 to 45 days to get a sense of how the takeover will ultimately affect rates. Today’s lower rates “could be a one-day reaction,” so you may want to consider locking in.
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