January 28, 2008

Interest Rate Drops: Do We Win or Do We Lose?

The Feds have caused a refinancing frenzy, due to the drop in lending rate from 4.25% to 3.5%, though rates may be dropping down as low as 3.0% this week, at least in part due to a report on the decline in new house sales during 2007. 

The Commerce Department reported sales of new homes in December fell by 4.7 percent, and that 2007 new home sales plunged by a record 26.4 percent compared to 2006.

The report exacerbated the market’s concerns about fallout from the housing and mortgage crisis but raised hopes that the Fed might cut rates again by a wide margin to stoke the weakening U.S. economy.

(Source: MSNBC)

Last week’s drop alone brought some 30-year, fixed-rate loans down to 5.125%, down from 5.5% the previous week. However not all wanna-be refinancers can reap the benefits of these low interest rates. Fixed-rate jumbo loans (those above $417,000) haven’t changed much at all, still hovering around 6.5%.

We’ll have to wait and see if these latest drops are going to be good for the economy or not. Interest rates on CDs and savings accounts are going down also, which could hurt quite a few of us out there. However, those who qualify for refinancing (you must have at least 20% equity in your home at it’s current appraised value) might just save a bundle. Also, this should certainly give any potential buyers on the fence out there, the additional motivation they need to jump in and make an offer. But, then again, isn’t this how the last mortgage mess started?