If you are a pre-qualified buyer with a lender ready to go, my advice is – don’t wait too long to pull the trigger on your loan. You may be waiting for that perfect time to buy because you think that prices are still coming down, and maybe you are right. Prices may still come down some more. But if you wait too long, you may be missing the boat for another reason; mortgage interest rates may go out of sight.
We continue to be at, or near, historic low interest rates and have been for a long time. We continue to enjoy these artificially low rates because of various government actions taken to stimulate our economy. Wall Street has not been purchasing these mortgage loans because they want higher yields. So, the government has stepped in to buy them at the current low rates, and this is good. However, direct government intervention into the mortgage markets is expected eventually to end. The only question is – when?
Presently the government is purchasing most or all of the FANNIE MAE and FREDDIE MAC instruments at artificially low prices. Evidently, they have extended their buying of this mortgage paper until March of 2010 or thereabouts. What will happen when they stop buying is anyone’s guess. But one thing is absolutely sure. They will stop buying at some point and then interest rates will go up. Whether rates will go up 20 basis points, 40 basis points, or 1000 basis points is something no one can predict, but it’s something to think about.
At the point when the government stops the intervention, rates will go up, and this will be bad. As a borrower, you could lose big time, and at some level of mortgage interest rates, you might not qualify for your loan anymore, because your interest payments will be too high. So if you are a buyer waiting on the sidelines, looking for that perfect time to buy, you might just be there right now. I can predict with some certainty that there will be a bunch of folks who will be kicking themselves next year for not acting now. You have been warned!