The Tale of the Incredible Shrinking Rate

Yesterday, mortgage interest rates significantly dropped below 5%.

The rate decrease came after The Federal Reserve purchased $750 billion in mortgage related securities. This was done in order to bring the rates under 5% and stimulate activity in the home purchase and refinance segments of the housing market. This action may even cause rates to decrease further as mortgage rates adjust in response to action in the bond market. Mortgage Tracker HSH Associates expect rates to level off at 4.9% and not decrease further.

30 year fixed mortgage products are now being offered by both local banks and national lenders in the 4.6% to 4.75% range with no points. There is so much refinance and new loan business that some banks are not reducing interest rates since they cannot handle the demand. Rates were already in the mid to low 5% range and many homeowners were already in the refinance process.

Mortgage brokers are indeed now reporting an overwhelming increase in just one day for refinance and purchase loans according to The Boston Globe.

There is an important side note: Homebuyers will, in most cases, have to put down at least 25% to benefit from these low rates. Also, jumbo loan rates remain around 6%. Jumbo loans start at $523,750 in the Greater Boston and Barnstable County areas.

Next week, it will be interesting to see what the rates are doing.