4.5% Mortgage Interest Rates Revisited

I had a client ask me this morning, "Have you heard anything about the new presidency lowering interest rates to th 4% range. I wrote about it earlier, but it is worth revisiting.

Just to be sure, here's the background:

Wednesday: A story "leaks" about the U.S. Treasury lowering mortgage rates to 4.5%

Thursday: "4.5% rates" leads the news.

Friday: 50 million Americans homeowners sit back and ask, "Should I refinance today, or wait for something better?"

Okay, let's address the obvious point first. If mortgage rates are low today, take advantage. They may not be low tomorrow or even 3 hours from now.

Think back to the old saying about a bird in hand being worth more than two in the bush. If you're a parent, you know that adage a little bit differently -- a bag of snacks in hand is worth more than two under the passenger seat.

Yes, mortgage rates could fall tomorrow but why take the chance? You can get today's low rates via a refinance, and then if rates fall again in the future, you just refinance again. Most loan officers will cover your closing costs in a situation like this if you ask so the prudent move is to lock up your savings today.

But getting back to the 4.500 percent thing.

Take a look at the articles as published by the business press. Each of them specifically states that the story is speculation (i.e. no facts). So, in the absence of facts, let's review two very important notes about the mortgage markets:

Historically, the Treasury doesn't set mortgage rates -- free markets do.

Government intervention doesn't guarantee low rates. As evidence, mortgage rates are up by a half-percent since last week already.

In other words, the Treasury may choose to intervene, but markets don't have to play along.

There are other buyers of mortgage bonds besides the government and some of them stand to lose a lot of money if the Treasury's plan pushes through. Because of lobbyists, this "story" may end up dying a slow death.

Or, it may not.

Look, I don't mean to say that the 4.5 percent story is a farce and that it won't happen, I only mean to remind you not to base your financial decisions on speculation -- just ask the airlines who hedged their bets on $200 oil how that turns out.

Instead, look at the facts of the mortgage market as they present today.

Mortgage rates are lower than they've been in years

Mortgage guidelines are shutting down "prime" borrowers

Home prices are falling nationwide, making qualification harder

If you think your mortgage rate is too high for this market, or just want an opinion, reach out to me by email or telephone and we can talk about it.

If refinancing presents a clear benefit to you, I'll recommend you do it as soon as possible -- rates are still volatile and could rise overnight to price you out. So, we take that bird in hand.

Meanwhile, if rates fall after closing, maybe reaching that mythical 4.500 percent number, we'll simply reconnect and refinance again.