Mortgage Planning ABC

It was a busy week for economists, policymakers, consumers and mortgage professionals.

We had a surprise .75% rate cut from the Fed.

We had the announcement of an economic stimulus package that included not only significant tax rebates, but a temporary increase in the conforming loan limits from $417,000 to $729,750 (a huge, huge win for Californians).

We also saw mortgage rates reach ultra-low levels, then spike off the bottom quicker than you can bat an eye. Take a look at 30-year fixed conforming rates from one wholesale lender:

• 1/22/08 AM 5.250% (Fed lowers Federal Funds target rate by .75%)
• 1/23/08 AM 5.000%
• 1/23/08 PM 5.125%
• 1/24/08 AM 5.500%
• 1/24/08 PM 5.625%
• 1/25/08 AM 5.625%

I’d like you to take two things away from this.

First, the Fed does not control mortgage rates — certainly not long-term mortgage rates, like the 30-year fixed.

Long-term rates are affected by economic outlook and inflation. They are forward looking. It has not been a secret that the U.S. economy is ailing. Long-term rates have declined the past few months in the face of this.

The Fed’s openness to aggressively cutting rates and the passing of the economic stimulus package is sure to help the economy. One analyst estimated it would add 0.8% to this year’s GDP. So it’s not surprising that long-term rates would rise on this news.

Where do rates go from here? Hard to predict for sure, but we do know that A (Fed cut) does not always lead to B (lower long-term mortgage rates). We also know that how your structure your mortgage is more important than trying to predict interest rates.

Second, have a reputable mortgage professional you can trust.

If you received a quote for a 30-year fixed mortgage for 5% on Wednesday morning and it turned into 5.625% by the next day, is it because you were bait and switched? Or is it because rates actually went up? You shouldn’t have to deal with that kind of stress.

And if you’re looking for a reputable mortgage professional you can trust, try this one here.