After seeing government engineered sinking mortgage rates and a quick surge in mortgage refinancing over the last several weeks, last week mortgage applications dropped to levels not seen since last November.  The 30 year fixed loan rate is hovering in the low to mid 5% range where it had previously been in the high 4% range earlier in January.

Where do mortgage rates go from here?  I don’t believe anyone can say with any real certainty, however I personally believe it’s unlikely to see them fall substantially from current levels.  The credit markets are still in disarray and lending institutions are pricing in higher risk premiums.

If you’re considering refinancing or buying a home – now certainly seems like a good time to act considering where mortgage rates are currently.  While the obvious directive of the new administration is to get and keep mortgage rates lower, helping to stabilize the sagging real estate market, it remains to be seen just what ammunition they have left to try and make this happen.

Today the Federal Reserve cut the key fed funds rate by .50 to 1.00% – as low as it’s ever been. But will mortgage rates and other home loan rates follow? That remains to be seen.

Mortgage rates and other home loans are more closely tied to other indices, one for example is the 10 year treasury bond. It’s quite possibly mortgage rates WILL come down a bit, but in this credit crunched environment rates are more influenced by credit spreads and willingness to loan by financial institutions.

Recent rate cuts haven’t done much for mortgage rates or other home loans with the exception being home equity lines of credit and other adjustable rate loans. Such adjustable rate loans have enjoyed a increasingly lower interest rate this year.

The fed hopes to spur lending activity in the broader economy with this recent move. Unfortunately rate changes typically have a lag time before we see any effect in the real world. We’ll know more in another 6 to 9 months or so. But keep in mind, the fed has already been cutting rates for quite some time and the economy has continued to slump!