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Refinance Opportunities Should Last a While

Normally, when borrowers flood lenders with calls asking about refinancing, that extra demand helps nudge interest rates up a bit, cooling the refinance rush. With lenders swamped with calls from borrowers hoping to get in on the government-backed no-equity refinance program launched last week, should you be concerned that rates will shoot up before you apply?

In a word, no. Rates on 30-year fixed mortgages should remain around 5 percent, where they've lingered for weeks, because the Federal Reserve is laboring hard to keep them there.

Orawin Velz, an economic forecaster with the Mortgage Bankers Association, pointed out that the Fed is committing $500 billion to the purchase of mortgage bonds from Fannie Mae and Freddie Mac. The idea is to keep demand for these securities up so interest rates stay low.

Fed action is not the only thing that affects interest rates--demand from foreign investors for these bonds is influential as well. But for the first half of this year, at least, the Fed's overwhelming influence should be able to keep rates around that 5 percent mark. Just don't try to hold out for rates to go to 4 percent. There's no indication that anyone in government wants to drive them that low.

By Elizabeth Razzi  |  March 9, 2009; 6:00 AM ET
Categories:  Mortgages  
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This article has the potential to mislead.

Treasury ALREADY has been buying mortgage bonds. They've been doing so since the first of the year. In fact, they've spent almost half of the $500 billion that was committed to this task.

Results? Mortgage spreads (difference between Treasury yields and mortgage yields) have indeed improved. HOWEVER, mortgage rates have RISEN.

Why? Because the general level of interest rates has risen.

The government CANNOT control long term interest rates. When the government dumps trillions of Treasury debt into the market (as they are about to do), it will drive rates higher.

Those who wait to refinance will be very sorry. Getting a 5% 30 year mortgage will be a once in a lifetime opportunity.

Posted by: 35offsuit | March 9, 2009 2:52 PM | Report abuse

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