Mortgage Rates Reach Record Lows

Dec. 18, 2008— -- On the heels of the Federal Reserve's taking interest rates to record lows, phones started ringing almost immediately at First Savings Mortgage Corp. in Bethesda, Md.

"Everybody out there is going, 'Wow, it's the bottom.' The Feds are making something work," said Betsy Lamond, a First Savings loan officer.

The Tuesday decision to cut the federal funds rate from 1 percent to a target range between zero and 0.25 percent, brought mortgage rates to record lows -- levels not seen in almost 50 years.

At First Savings Mortgage, loan officers are being flooded with e-mails from homeowners and homebuyers eager to know if they can now get a better mortgage rate.

"It's a welcome thing in this economy to save any amount of money that you can," loan officer Michael Masella said.

In the three weeks since the Federal Reserve said it would do whatever it takes to drive down consumer interest rates, 30-year fixed-rate mortgages have dropped a full percentage point to 5.06 percent from 6.06 percent, according to HSH Associates, a financial publisher. The savings for the average homebuyer with a $180,000 mortgage: $113 a month, $1,400 a year.

While action by the Federal Reserve normally takes months to work its way through the economy, the recent moves have been so far-reaching that the impact is already being felt, helping Americans with adjustable rate mortgages, too.

"My new rate will be 3.75 percent, a 1 percent drop," Ken Todd e-mailed ABCNews.com from Arizona. "This was a total, but welcome surprise..."

Analysts say that because of the Federal Reserve's action, millions of Americans will not only save money, hundreds of thousands more may avoid the nightmare of foreclosure.

Rate Cut Saves Some From Foreclosure

"The good news is we're not going to see a wave of foreclosures from interest rate resets like we did a couple of years ago," said Greg McBridge, senior financial analyst at Bankrate.com.

Not everyone will benefit. Twelve million Americans whose homes are now worth less than their mortgages will not be able to take advantage of this historic opportunity.

"I would love to refinance," Patti Andruchiw wrote to ABCNews.com from Pennsylvania. "But I have a pre-payment penalty."

The lowest Federal Reserve interest rates on record have also produced the lowest prime lending rate in memory at 3.25 percent. Economists predict small businesses, car buyers and college students -- anyone who borrows at a rate tied to the prime -- should see a boon.

And analysts say beware: Anyone hoping to capitalize on these super-low rates must prove they're creditworthy.

"Just because interest rates have come down," McBridge said, "it doesn't change the fact that who qualifies for a loan is an entirely different ball game now than it was a couple of years ago."