Mortgage Rates Headed Lower?

Despite all the talk of the debt downgrade and how mortgage rates and interest-rates would skyrocket, it just hasn;t happened. In fact, mortgage rates have done the exact opposite, mortgage rates especially long-term mortgage rates have gone down. It’s been our thinking all along that while the downgrade of America’s debt would rattle the stock market, the mortgage market wouldn’t be affected.

Time and time again if the stock market suffers there is consitentantly a “flight to quality” in the bond market where bond prices rice and inversaly mortgage rates go down. So long as the economy stumbles or even goes negative mortgage rates should stay low. We are in a precarious position that if rates spike up too quickly it will casue a recession. On the other hand too low of rates for too long will casue inflation and an eventual rise in mortgage rates.

If you have not refinanced your mortgage now is a great time to do so and get a lower mortgage interest-rate. Should you need oto buy a home now is the perfect balance of low home prices and low mortgage rates.

Here is a great article from that further explains how the debt down-grade actually has helped to lower mortgage rates –

New York (CNNMoney) — At least one fear was not realized amid Monday’s meltdown: the concern that mortgage rates would immediately shoot higher in response to Standard & Poor’s downgrade of Fannie Mae and Freddie Mac, the government-sponsored entities that are the 800-pound gorillas of the mortgage market.

In fact, the initial response to Fannie and Freddie getting cut to AA+ from AAA was precisely the opposite. Mortgage rates were poised to continue declining.

HSH Associates, which surveys lenders, quoted the average 30-year fixed rate mortgage at 4.44% Monday. “We expect to see rates go into the 4.30’s by noon tomorrow,” said Keith Gumbinger, of HSH Associates.

Mortgage rates are set off of the interest rates on U.S. Treasury notes and bonds. Even though Standard & Poor’s pulled its AAA rating of the United States Friday night, investors still rushed into U.S. Treasury securities Monday as a safe haven, believing more in the “full faith and credit of the United States” than in the opinion of Standard & Poor’s credit analysts. As investors snapped up Treasury notes and bonds they pushed down interest rates on those securities, which move inversely to prices.

How Fannie Mae’s downgrade impacts you

Late Monday afternoon, the 10-year Treasury note traded at a yield of 2.34%, down from 2.56% on Friday and 3% just two weeks ago, a huge move. That 10-year yield is the benchmark used to set 30-year fixed mortgages.

“The flight to quality effect is dominating,” said Walt Schmidt, senior vice president of FTN Financial Capital Markets. “The net effect is lower mortgage rates.”

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