If you are one of the few people left that can actually qualify for a home loan, you should be pretty thrilled with the interest rates that are currently available! There were significant decreases just this past week alone, to levels we have not seen in many years. Of course, given recent market conditions, my comment could be obsolete before this blog is even published…

The rumor that’s been floating around recently deals with a proposed 4.5% interest rate for home loans that would be basically “government subsidized”. Of course, the question of the day is that if this program actually comes to fruition (it’s purely speculation at this point), will the people that need it most even qualify? During the third quarter of 2008, a record one in ten American homeowners with a mortgage was at least a month behind on their payments or in foreclosure, according to the Mortgage Bankers Association. And with unemployment soaring to record highs as well, the numbers are expected to increase into 2009. 

The Prime Rate, which home equity loans are based upon, as well as many consumer credit cards, auto and consumer loans is currently set at 4%. The Prime Rate has a direct correlation to the Federal Funds rate, set by the Federal Reserve, currently set at 1%. With speculation that the Federal Funds Rate will be cut by .75% during the next Fed Meeting on December 16th, it is anybody’s guess what effect this will have on the housing and lending market given the string of cuts already implemented over the past year. Although Federal Reserve rate cuts do not necessarily mean lower interest rates, these moves on the part of the Fed and the Treasury are designed to help .

So, back to the original question… 4.5% mortgage rates? Well, the fact is, the Treasury does not set rates for mortgages, the rates are based on the supply and demand for mortgage-backed bonds on Wall Street. And given that Wall Street aka the stock market is strongly driven by speculation (and the whatever the day’s newsworthy crisis, or accomplishment is) I wouldn’t bet any money on it.

Pipe dream, or reality in the making; 4.5% home mortgage rates would certainly entice me to re-enter the housing market…. how about you?

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