"Crying Wolf" on Interest Rates?

Still Low (For Now)

For months (years?), Realtors have been warning prospective home Buyers that today's low rates (still around 5% for those with excellent credit) won't last much longer.

That's based on a number of potent economic factors:

--Trillions in economic stimulus pumped into the economy by the Fed and its potentially inflationary impact;

--The dire status of Fannie Mae and Freddie Mac -- the sources of liquidity to the housing market at the moment;

--The withdrawal of both direct (tax incentives) and indirect government support to the housing market (like the Fed's purchase of $1.25 trillion in mortgage-backed securities, which stopped in March).

And yet, mortgage rates have stayed low -- and now, jumbo rates are coming down, too.

You'd certainly guess that by now, many (most?) consumers take perpetually low interest rates for granted.

I'm not forecasting an imminent spike.

But we all know what happens in other markets (like stocks) when investors get complacent . . .

What Are Mortgage Rates? Get Your Calculator

Blend of Two Variables

Answering the question, "what are prevailing mortgage rates?" seems simple enough.

After all, the answer should be "5%," "5.25%," or something similar, depending on one's credit scores, and the mortgage product in question (fixed, 5 yr ARM, 10 yr. ARM, etc.).

In practice, it's a little more difficult, because rates are really a function of two variables: the quoted mortgage rate, and the lender's origination fee (also called "points" -- essentially, their commission).

So, whereas a week ago rates may been quoted at 5.25% and .75% points, this week they might be 5.375% and 1% origination.

To make an apples-to-apples comparison, you need to get out a spreadsheet and tweak the mortgage rate by the imputed rate of return on the lender fee (or at least, I think that's what the MBA-types would say).