Lower Expectations

Like a lot of families, mine cut back on holiday spending this year. With the economy weakening and everyone anxious about their jobs, my wife and I agreed to forgo gifts for one another. And while we still spoiled our children, gifts for our extended family were more modest than last year.

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While I like gift-wrapped packages as much as the next guy, there was only one present I wanted: the chance to refinance my mortgage at a ridiculously low rate.

The week before Christmas, the Federal Reserve dropped the federal funds rate to zero percent, a number usually associated with the cut-rate financing deals offered by near-bankrupt auto companies. While movements in Fed-controlled short-term interest rates don't always affect long-term rates (which include mortgage rates), in this case they have. The rate on 10-year Treasury bonds recently hit a historic low of 2.1 percent. That, in part, has led to a rush of calls to mortgage brokers by homeowners seeking to refinance, with rates on 30-year mortgages dipping toward 5 percent. Since I hate to miss out on a good deal, I shot my mortgage broker an e-mail just before Christmas and asked if he's got a present for me.

I'm not in any rush, mind you. I've read the statement issued by the Federal Reserve’s Open Market Committee, which made clear it expects to hold short-term rates low for quite some time.

I've also been closely following the debate over whether the federal government should step in and subsidize mortgages for new homebuyers, which could send rates even lower. As ++The New York Times reported a couple of weeks ago, the Treasury Department, real-estate-industry lobbyists and even Ben Bernanke have been chewing over a plan to let new homebuyers finance their home purchases at a rate of 4.5 percent, with the government helping to subsidize those rates. Some proponents of this plan—among them Columbia professors Glenn Hubbard and Christopher Mayer, who wrote about it in The Wall Street Journal—argue for extending this rate to include even existing homeowners, who could refinance their existing mortgages at 4.5 percent. Rates this low, they contend, would help stabilize the falling housing market, which is what caused this whole economic mess in the first place.

For a lot of people, including me, such subterranean rates would mean some serious savings. I carry two mortgages on my house. My first mortgage is a 15-year loan at 5 percent—a rate that's so low, I figured I'd never have to refinance. The second loan, used to finance a big renovation a few years ago, is a 30-year note at 6.25 percent. Like most people, I wish my monthly payment weren't as high as it is, but compared with a lot of people, I don't have too much to complain about. Even as its value has fallen, my home is still worth more than I owe on it, and so long as I remain employed, my monthly mortgage payment is well within the range that lenders think I can afford, based on my income.