Federal interest rates are not directly linked to the mortgage markets, therefore they do not have a direct effect on mortgage interest rates. This seems to be one of the biggest misconceptions in the mortgage industry. When the Federal Reserve raises or lowers interest rates, the interest rate your lender or mortgage broker tells you may not match this rate.

The main driver of mortgage interest rates is the bond market, more specifically mortgage-backed securities. When the demand for these bonds is high, interest rates rise; Conversely, when demand is low and supply is high, the interest rate on a new mortgage will decrease to stimulate demand. This is an oversimplification of mortgage rates, but it should help spread the myth that the mortgage market will go down and up when the Federal Reserve changes the rate.

If you are in the market for a refinance in the next year (2008 to 2009), you probably shouldn’t wait to do so. If you have 30% or less equity in your home right now and need to refinance for any reason (especially if you’re on an ARM), you’ll want to act quickly because at least 50% of applicants in today’s mortgage market are running. in trouble when they have an appraisal done on your property. They suddenly realize that they have lost up to 20% (sometimes more) of their equity due to the housing market crash and the increase in foreclosures happening across the country. The simple fact is that if one of your neighbors forecloses tomorrow, you may not be able to refinance with your ARM (Adjustable Rate Mortgage) because you now owe more than your home is worth. This happens more often than most people realize.

You can visit websites like (www.Zillow.com) or (www.Cyberhomes.com) to get an idea of ​​the current value in your area. These websites are not exact and can sometimes be quite far off if the property is not considered the norm in the area. However, they are a valuable tool for getting an estimate based on comparable properties in the area. They also show the moving average of home prices and the amount your property has increased or decreased in the previous two-month, seven-month, and one-year intervals, and since the last sale. In addition, you can contact an appraiser or real estate agent in your area to find out what effects foreclosures are having on your particular real estate market. Real estate agents and the appraiser usually provide this information for free, if you’re just looking for general information. If you are looking for an exact figure to be named for your property, you will need to pay an appraisal which usually costs between $300 and $400.

If you don’t have an immediate need to refinance, now might be a good time because interest rates are at six-year lows and aren’t expected to drop below 5.5% per year (30-year fixed rate) for some time. Contact your mortgage lender or broker for details on current rates, as these rates change daily and have proven somewhat volatile of late. This article is merely a warning in today’s real estate market. The next few years will likely even out and real estate will start to rise in value again. For now, we suggest you be careful and act quickly if your current equity raises questions about whether or not you will be able to refinance.