Mortgage Rates in 2009: 7 Things You Need to Know

5. Housing Market Turmoil: The decline in home prices—coupled with rising mortgage delinquencies and foreclosures—has prompted investors to demand higher returns on their investments in securities backed by home loans. As a result, the spread—or the difference—between the yields on 10-year treasuries and 30-year fixed mortgage rates has widened significantly. This spread expanded to nearly 3 percentage points in the week of December 5, from 1.5 percentage points in the first week of June 2007—before the credit crisis struck. And with home prices expected to continue falling throughout at least the first half of 2009—and mortgage delinquencies accelerating—this "risk premium" should remain elevated. "We're not going to get back to the same tight relationship between the 10-year [treasury] bond and fixed mortgage rates anytime soon," says Tom Vanderwell, a mortgage lender from Michigan. But despite this upward pressure, Vanderwell expects mortgage rates to finish 2009 somewhere between 6 and 6¼ percent.

6. Lending Standards: Although mortgage rates are likely to remain attractive next year, not everyone will be able to take advantage of them. Many homeowners with adjustable-rate mortgages that would like to refinance into more-affordable, fixed-rate home loans have negative equity, meaning they owe more on their mortgage than their home is worth. As a result, they will not be eligible for refinancing. Meanwhile, those looking to purchase a home will face a credit environment that is significantly tighter than in the housing boom days. In order to access today's most attractive rates, borrowers will have to be able to document their income, make a down payment, and have good credit. Mark Hanson, a managing director who handles real estate and finance research at the Field Check Group, says there aren't a great deal of potential home buyers in the market today "who have jobs, two years of tax returns, [who] are qualified, and have saved a large enough down payment."

7. No Rush: But even though rates may be low today, Larson says qualified borrowers shouldn't feel pressured to see their lender immediately. "This is a lot less of a situation where you've got a temporary spike lower that if you don't get out the door in 48 hours, these rates are going to be gone," Larson says. "This is more of a longer lasting trend where—sure, you will see some fluctuations—but that the trend in rates is probably lower for a number of months."