Interest Rate Update

The Federal Reserve swooped in to bolster the flagging economy with a further $800 billion rescue package for the failing mortgage industry this week .U.S. mortgage rates fell more than three-quarters of a percentage point when the program was announced.

“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved financial conditions more generally,” the Fed said in a statement.   With this significant move in interest rates, now is an excellent time to buy as we approach the holiday season. This is definitely a buyers market, and those sellers with their properties for sale during the holidays generally are very motivated to sell, and therefore are very willing to negotiate.

The problem with the mortgage market going forward is that with the complete breakdown of the secondary mortgage backed security industry, there is a shortage of capital to make new loans. Mortgage banking companies source of funds to make new loans came from packaging their old loans into securities and reselling them to investors. I totally agree that way too many loans were made with lax underwriting standards, but even strong loans made today have a restricted secondary market to sell these loans to provide new capital for new loans.

Until investors are again willing to purchase mortgage backed securities because they again have conficence in the real estate securing these securites, I think that it is imperative that the government step in to purchase these new securities. If properly underwritten, the government should make a profit due to their cheap borrowing costs .

The following are approx. interest rates as of 11/26/08 , as provided by Michael Cordoba:




  Rates Points Rates Points
  30-Year Fixed Rate 5.250% 1.000 8.125% 1.000  
  30-Year Fixed Rate FHA 5.500%   6.750%    
  40-Year Fixed Rate 6.375% 1.000   1.000  
  HYBRID ARMS          
  5/1 ARM 5.500% 1.000 6.250% 1.000  
  7/1 ARM 5.875% 1.000 6.500% 1.000  
  10/1 ARM 6.125% 1.000   1.000  




INTEREST ONLY Rates Points Rates Points


  5/1 ARM 5.750% 1.000 6.375% 1.000  
  7/1 ARM 6.125% 1.000 6.625% 1.000  
  10/1 ARM 6.375% 1.000   1.000

For more information about buying or selling a home on the Palos Verdes Peninsula, visit my webstie at

About mmegowan

I am a realtor with Remax Estate Properties in Palos Verdes Estates. Visit my website at
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