Monday, February 2, 2009

Will Stimulus Lower Mortgage Rate?

By Yulun Hung

As the stimulus package move to the Senate, Republicans are pushing to lower mortgage rate. Senate Republicans are proposing to attack the mortgage crisis directly by introducing a 30 year fixed mortgage rate at 4% for a brief period of time. The plan is to encourage people to invest in real estates. If the plan passed, the 4% mortgage rate will only be offered to credit worthy borrowers and the government will cover 50% of the cost if people default.

Obama has said the stimulus package will fix the financial system and mortgage rate will likely be lowered. Whether the stimulus package will follow Senate’s version is still uncertain, but if it does, the plan will be $70 billion more than the House version. On top of that, the stimulus might become more expensive in the future as mortgage rate rises.

Financial services analyst for Standford Group, Jaret Seiberg, commented low rate mortgages build on government money can be very popular politically, but can be very expensive at the same time.

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