Danville real estate home loan rates drop to all time lows, but why???

Comments(0) By Mike Miller •May 20th, 2009

You have heard the rumors of 4% loans, and here is the fact. My investors are funding loans up to $729,750 with rates as low as 4.25%. That is not an adjustable rate. That is fixed for 30 years. And no, there is no prepayment penalty.

Truth is, you are NOT going to refinance that loan anyway!

But WHY are the rates so low, and how long will they stay down???

They are low because for the first time the Feds are actually MANIPULATING the FIXED RATE HOME LOAN MARKET. In my 23 years as a loan originator, I have never seen the Feds do what they are doing.

BACKGROUND: The Federal Reserve raises and lowers the Federal Funds Rate and the Discount Rate. This affects the cost for banks to borrow from the Feds. That then impacts the cost of short term borrowing for consumers (ARM’s for the most part). Fixed rates are affected by the price of long term bonds. Bonds are considered a safe place to put money. You don’t get the same return as stocks, but you are at least sure of your return. In fact, BONDS AND STOCKS COMPETE FOR AVAILABLE MONEY.

This is what affects mortgage rates, because bonds and mortgage back securities are similar in nature, they are similar in this respect.

The Feds do not control the price of bonds, which means they do not control mortgage backed securities, which means they do not control fixed rates. Got it?

Now stay with me because…

IT IS A COMMON MISCONCEPTION THAT THE FEDS CAN CONTROL, OR COULD EFFECT, LONG TERM FIXED RATES, BUT THEY DON’T, THEY HAVE NOT, THEY CANNOT…..THAT IS, UNTIL NOW!!!!!!!!!!!!!!!!!!

From now until the end of the year, the Feds are actively buying existing mortgage backed securities. Because there is this huge buyer of BONDS, IT MEANS THE YIELD IS LOW. Normally the yields must be high, to attract a buyer, but the Feds are buying so much ($1,250,000,000,000) it keeps the yields, and the rates low. That is 1.25 TRILLION dollars.

NOW FOR THE GREATEST PART!!!

THIS IS WHY YOU READ THIS POST….

You might think, “GREAT!” more bailouts! But that is not true, the money will come back to us, because they are buying securities yielding 5.5%. So, by buying these securities they drive rates down (big buyer remember?) AND THAT WILL CAUSE THESE 5.5% RATES TO REFINANCE TO 4.5%, AND THE FEDS WILL GET THEIR MONEY BACK!!!

BRILLIANT!!!!

So, in a nutshell that is why Danville mortgage rates are low.

UNTIL THE END OF THE YEAR….

So now is the time to apply for your 4% rate loan, as next year will be too late!

Click on the “apply” or call me to discuss your specific scenario!!!