Interest Rates on Home Loans

I wish I had a dollar for every time someone asks me "What's the (interest) rate?"

Of course, every one who buys a home wants to lock in the best rate because lower rates equate to a lower monthly mortgage payment.

While rates are very favorable for home purchases right now, the debate is heating up over how long they will stay this low.

For example, rates as of 12:30 PM CST today were 5.0% on a 30 year fixed conforming loan, 4.5% on a 15 yr. fixed conforming loan and 4.0% on a 5 yr. ARM (Adjustable Rate Mortgage) conforming loan -- but that can change hourly, daily, weekly and monthly.

One of the factors influencing interest rates is the sale of mortgage backed securities (MBS). Generally, the greater confidence investors and other countries have in our economy, the greater the purchase of MBS. Lately, the Fed has been purchasing a lot of the MBS in an effort to help our economy and keep interest rates low. However, it remains to be seen how long the Fed will continue to do this.

Many are predicting a gradual decrease of the program over the next few quarters versus an abrupt stop of the program which was expected in March. Either way, the Fed's next move regarding its mortgage purchase program will likely have a strong impact on the direction of rates.

Local mortgage bankers and correspondent lenders tell me that we should see rates slip just a little more next week if economic news continues to point to a slow path for economic recovery. That, coupled with the first time home buyer tax credit, step up home buyer credit (for existing homeowners) and low prices are three reasons why it continues to be a favorable time to buy.