Mortgage Services and Loan Tips

What affects the government will bailout have on future mortgage rates?

We are currently building a home and would not really secure financing until February or March of 2009. What is the probability of mortgage rates will go down and by how much? We plan on locking in a rate, but want do not wait too long before they start to go up.

You should be able to get a lock with a float down option. That is, you can protect yourself against rising prices "capping" your rate. If rates are lower when the house is substantially complete, you can float down to the market 30-60 days before closing. Nobody can say what will happen to rates for certain, unless they will change. But it is obvious that the rates should be better, because now the Fed is explicitly Freddie and Fannie guarantee obligations, so the yield on these securities (which drive the bank) should decrease until they are about both government bonds with similar maturity. At present there is a 1% difference in yields. Markets should adjust so that spreads are substantially reduced. Otherwise, a smart investor would prefer mortgage backed securities to the Treasury because they have a higher return without additional risk. For some reason the markets have not responded fully to this change, but that may because the bailout is still up in the air. Freddie and Fannie's assets are not toxic assets involved in the rescue in general, but they have lost favor with foreign investors in particular since the crisis began. In short, you need not worry about what will happen to rates your rate lock allows you to float down when the home is almost finished. Good luck.