While most banks aren’t currently offering rates at the historically low levels seen earlier this year, overall, mortgage rates are still very affordable. According to bankrate.com, the national average cost for a 30-year fixed rate loan Wednesday (October 21) is 5.23 per cent, compared to 4.99% one week ago.

The Fed is in a somewhat precarious position at the moment as central bankers sift through various data reports trying to decide its next move on rate policy. Despite some commentary from a few bankers recently suggesting a tighter monetary policy, it would seem difficult for the Fed to raise rates significantly anytime soon with the housing market just getting its legs and job issues still prevalent.

One of the major motivators for the Fed to go with a zero interest rate policy was to help support other interventions intended to positively affect the housing market. Housing and credit were two leading sectors of the economy in terms of the recession. Thanks to several months of near five per cent mortgage rates, many homeowners refinanced into better loans, and buying interest in housing and new construction has picked up a bit.

Even with very cheap mortgage opportunities, many Americans have still been unable to take advantage because they are unemployed or dealing with severe pay cuts. Unemployment is nearing ten per cent, and many leading economists still expect it to rise to a peak at or just above the level sometime early next year.

With many people out of work or operating on reduced incomes, the ability to put a down payment on a home or to take on a new mortgage has offset some of the potential with lower rates.

Though the Central Bank is anxious about waiting too long to raise its base rate that it charges banks and lenders in order to combat inflation, it might be forced to wait until the jobs market improves. If mortgage rates remain at or near current levels, a significant improvement in the unemployment level and the overall economy would likely increase confidence in home buying and real estate investment.

Home buyers or investors looking for an even lower interest rate might consider a 15-year fixed loan. While monthly payments are obviously higher, the total repayment cost over the life of the loan is dramatically affected since the current average rate is 4.69 per cent. Some banks have 15-year fixed loans with rates closer to 4 per cent than to 5 per cent.

Neil Kokemuller
9:14 AM EST
Wednesday, October 21, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University. He is also in house stock market commentator at Live Charts UK, where you can find real time charts and share prices.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.