Government Cutting Mortgage Rates: Is Now the time to Buy or Refinance?

Even as the industry pleaded with the government to allow people access to rates of 4.5 percent, the Federal Reserve cut keys rates to almost zero. Now, 30-year fixed rate mortgages are being offered at 4.5 to 5 percent, and it may be time to take advantage and buy or refinance a home.

As the year winds to a close, some homeowners are seeing their wishes for the greatest mortgage rates of a lifetime come true. One example is the unbelievable loans offered to some homeowners by the nonprofit Neighborhood Assistance Corporation of America. The organization is letting some delinquent borrowers refinance into new mortgages as low as three percent, in order to help them avoid losing their homes to foreclosure under the burden of expensive ARM loans. Similarly, the FDIC is offering qualified customers of the failed IndyMac Bank, which the agency was forced to take control of back in July, five-year rates as low as 3 percent. The idea is that by letting borrowers pay a discounted rate for a few years, it will give them time to get back on their feet-and the housing market time to recover. As real estate regains some lost value, it will automatically push up the equity of many homeowners who became upside down in their loans due to a dramatic crash in home prices.

Lower mortgage rates not pleasing all

Not everyone is happy about the fact that some at-risk borrowers are getting once-in-a-lifetime mortgage rates. Agencies like the FDIC, which are giving delinquent homeowners these attractive rates, are not apologetic, however, because they view their policy as a necessary kind of emergency triage. They're tending to those who are in the worst shape, because those are the ones facing imminent loss of their homes. Foreclosure translates into big losses for the mortgage lender, too. So if the Treasury, Federal Reserve, or taxpayer is on the hook for those mortgages, then agencies like the FDIC feel responsible to do whatever it takes to protect those entities.

Low rates for the New Year

Being in dire straits is not the only way to get an incredible 30-year fixed rate loan, however.  Lately, the Federal Reserve has cut its key rates down to the bottom. With rates hovering around zero, and the Treasury injecting money into banks, lenders are confident enough to offer customers low mortgage rates, whereas a few weeks ago, banks raised mortgage rates when the Federal Reserve dropped its own. Banks are now offering 30-year fixed-rate mortgages around 4.75 percent. Those who have good credit and the down payment cash necessary to get a loan can nail down an historically great rate as a way to celebrate the New Year.

Because of prolonged economic uncertainty, not everyone is jumping in feet first. Many economists believe that the positive effect of lower rates may be modest in terms of inspiring consumers to buy homes, at least until other fundamentals show noticeable improvement.