Don't Wait: Mortgage Rates Unlikely To Go Any Lower

Jeff Cox, |Special to

Thinking of buying a house? Mortgage rates may not go much lower than they are right now, and are likely to start rising.

And if you're looking to refinance your current mortgage, do it soon.

While mortgage rates did take a dip Wednesday after the Federal Reserve announced it had lopped off another quarter-point on short-term interest rates, the drop isn't expected to last long. In fact, most experts think home loans will only get more expensive.


Indeed, Freddie Mac reported Thursday that mortgage rates averaged 6.06 percent this week, up from 6.03 percent a week before. The rate represented a seven-week high and signaled that economic factors would continue to pressure mortgage costs.

"It's a testament to the fact that the Fed does not have any direct influence on long-term interest rates that serve as a benchmark for mortgage rates," said Greg McBride, of "Mortgage rates have pulled back since the Fed's announcement yesterday, but the ultimate direction of mortgage rates is going to be governed by the outlook for the economy and inflation."

All this is bad news for people trying to get a home loan.

"All these (Fed) cuts have essentially done almost nothing for borrowers who are looking for 30-year fixed mortgages," said Mike Larson, an analyst with investment newsletter "You've got 300 basis points of Fed cut and all of 40 basis points of reduction in fixed mortgage rates."

Bankrate lists 30-year rates at 5.80 percent, exactly where they were a week ago before the Fed move.

The expected trend upwards means little incentive for refinancing, and recent trends in mortgage applications have reflected a continued pullback in new home loan requests as well.

But that doesn't mean there are no winners in the current housing market, where people looking to buy a home at a time when prices continue to tumble are among the few saving money these days. The national median single-family home price in March tumbled 8.3 percent from a year ago to $200,700

Also in the winner's column are those holding home equity lines of credit. They are driven by the prime rate and will continue to drop, though the lines are increasingly difficult to obtain as banks tighten credit standards.

Ironically, one of the big losers over the past few years in the mortgage business -- holders of adjustable-rate loans, both prime and subprime -- also will benefit as overnight rates, also referred to as Libor, fall. Resets for adjustable mortgages are expected to be less severe in 2008 than in previous years.

Again, though, don't expect the trend to last, as the Fed has been indicating its rate-cutting posture is at or near a close.

"If you have an adjustable-rate resetting this year, the reset itself will be pretty manageable thanks to the rate cuts by the Fed," McBride said. "But you wouldn't want to delay refinancing for too long, because you could very will miss out on the opportunity to lock in a fixed rate at 6 percent. Ultimately that's a good place to be."

Brian Simon, senior vice president at Freedom Mortgage, in Mount Laurel, NJ, said the Fed may have another cut left.

"I don't think another quarter would be out of the question," he said. "This rate cut did have some immediate effect on the market, which I think was good."

But Simon also thinks rates will rise and hopes that the consumer at least will benefit by some loosening of credit.

"From the consumer's perspective hopefully we'll see a little credit loosening for rationality sake," he said. "I think the rates definitely will creep up and that's probably a good thing, because it will help the market settle down a little bit while everybody works through their credit issues and liquidity issues."