How to Take Advantage of Low Mortgage Rates

Sept. 22, 2011— -- Markets around the world took a tumble today after investors took the Federal Reserve's efforts to stimulate the economy as a sign that the global recovery is slowing down. But while traders on Wall Street only see gloom and doom in the Fed's low interest rates, those on Main Street could get the breaks they've been waiting for.

The losses began on Wednesday afternoon when the Fed announced it would trade in $400 billion worth of short-term bonds for the same amount of longer-term bonds. The idea was to keep borrowing rates low for a longer period to spur growth in the housing market and other areas of the economy.

"There's widespread recognition that the Fed's best ideas were used up a long time ago," said Greg McBride of BankRate.com. "But there's a lot of skepticism, rightly so, that this is really going to move the needle in terms of overall economic growth and the jobless rate."

The problem isn't interest rates, McBride said -- it's demand.

"Too many people are out of work," he said. "Too many people that are still working are afraid they're going to be out of work. And it's holding people back. That's holding back the economy, and that's not something the Fed can fix."

While the economic outlook does seem gloomy, there seems to be a light at the end of the tunnel. Fixed mortgage rates have hovered at record lows for the third straight week and are likely to fall even further now that the Fed has made it its mission to drive long-term interest rates even lower.

The average rate for a 30-year fixed mortgage stayed at 4.09 percent this week -- the lowest it's been since 1951-- and a 15-year mortgage rate fell to 3.29 percent -- which economists say is the lowest rate ever for such a loan.

"If you're in the market to buy a home, the timing is tremendous," said McBride. "Because the affordability is so great, not just because of low mortgage rates, but also because of the sharp decline in home prices."

If you're looking to take advantage of those mortgage rates, Yahoo finance contributor Farnoosh Torabi said there are ways to qualify right now.

What's the number one thing you need? A high credit score.

"If that's what it takes for you to get that mortgage, make sure you're paying your credit card bills on time and not just the minimum," she said. "Maybe three, four times that minimum, 'cause you want to get your debt level to a place where the banks can feel confident and comfortable to lend to you."

If you know your credit score is low, Torabi said, it's possible to bring it up in a matter of months, "as long as you are vigilant and you are dedicated to bringing down your debt levels and you are always paying on time.

"The easiest way to pay on time is to automate your payments so that you never fall behind," said Torabi.

Always look at ways to lower the little bank fees that add up, Torabi said. She suggested going to places like BankRate.com to find community banks, credit unions or even big banks that still offer fee-free checking. Other options, like always using your bank's ATM instead of another ATM, will also keep money in your pocket.

"Put your budget under the microscope and trim the fat," she said. "You've really got to look at the little things."