Here’s how the Fed’s latest announcement will affect mortgage rates.

Fixed-rate mortgages:

Rates for long-term home loans are near their modern-day lows. That has little to do with the Fed’s last rate cut, on Nov. 6, and much to do with what the Fed’s rate-setting committee has called “heightened geopolitical risks” — the confrontation with Iraq.

Investors await the situation with Iraq to be resolved. In the meantime, they put a lot of money in super-safe Treasury securities, which drives down yields. Mortgage rates don’t always move in the same direction as the short-term rates that the Fed sets. Instead, mortgage rates tend to follow the broad ups and downs of Treasury yields, and both have declined since the Federal Open Market Committee last met on Dec. 10, when the Fed left rates alone.

In Bankrate.com’s weekly index of mortgage rates offered by large lenders, the average 30-year rate was 5.96 percent Jan. 22. When the Fed cut short-term interest rates on Nov. 6, the Bankrate.com weekly index of mortgage rates stood at 6.18 percent.

Best move now:
Mortgage rates have stayed between 5.96 percent and 6.25 percent for the last three months. Look for rates to remain range-bound, but don’t be complacent. It’s always possible that they will shoot upward and remain there.

By
historical standards, rates are low right now. If you lock in a rate you feel comfortable with now, you might fret a little if rates drop even lower. On the other hand, you probably will feel satisfied in a couple of years, when rates are higher than they are now.

Try the Bankrate.com
mortgage rate search engine to locate the best deal.

Adjustable-rate mortgages:
ARM rates tend to follow changes in short-term rates, such as the yields on short-term Treasury bills and notes, which track the federal funds rate closely. ARM rates look like a bargain now, but eventually they will rise. They might go up by the middle of the year if the economy recovers, or might even drop if the economy falls back into recession.

Best move now:

Someone who plans to live in a house for five years or less might want to consider an ARM because rates are so low. One-year ARMs averaged 4.34 percent Jan. 22 in the Bankrate.com national weekly survey.

Search for the best ARM rates in your area.

Keep in mind that fixed rates are low by historical standards. Borrowers with a longer-term horizon should lock in a low rate for 15 or 30 years.

— Posted: Jan. 29, 2003