Interest rates have dropped dramatically over the past week. According to Bankrate.com the national average for a 30 year fixed rate is 5.76%! We’re at a 2 year low….
Why are they going down? Generally speaking, mortgage rates tend to move in the same direction as the 10 year Treasury notes. But in this case, rates are not mirroring the 10 year treasury. The Federal Reserve is going to buy a half-trillion dollars of mortgage backed securites from Fannie Mae, Freddie Mac, and Ginnie Mae. The Fed stated “this action is being taken to reduce the cost and increase the availibility of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.”
What kind of Impact does this have? When you hear about lower interest rates you automatically think more affordability…borrowers qualifying for more money or paying less for the same amount borrowed. For investors, I believe next year will be an excellent opportunity to find properties that have a positive cash flow. Home prices will continue to trend downward and mortgage payments will be lower for the same property. The mathmatical equations that investors look for; cap rate, ROI, etc. should look more attractive in the next several months.
The X-Factor: How many people will qualify to take advantage of lower interest rates? Are you upside down on your mortgage? Is your FICO score under 720? If you don’t have 20% down and you have a low FICO score it’s really not going to help you much. On the other hand, if you do qualify under the current guidelines there is a lot of opportunity out there for you. Whether you are a seasoned investor, or a first time homebuyer, we might not see interest rates as low as they are going to be over the 6 months for quite some time. If you’ve been sitting on the sidelines, I believe the next 6-9 months will be a great opportunity to invest!
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