Those wanting to buy or refinance may get the deal of the century at their local bank if they do so soon.

Late last year the National Association of Realtors (NAR) predicted that if rates hit 4.5 percent because of proposed emergency government programs to pump cash into banks, it could inspire as many as half a million home sales. But even without the specific kind of aid that the NAR recommended, mortgage rates have been falling for months. Now rates on many of the most popular home financing products are below five percent and are beginning to close the distance on that incredibly affordable 4.5 percent target. Moody’s Economy recently predicted that interest rates would likely hit that level by the middle of 2009 and continue dropping to a low of 4.37 percent in the second quarter.

But because the Treasury is spending so much money to bolster an ailing economy, most economists anticipate that inflation will begin to push rates back up by the end of the year. By the first quarter of 2010, rates are expected to be at around 5.87 percent. That means that the next few months are critical for those who want to capture extremely low mortgage rates before they slip away.

The NAR has been appealing to Congress to buy down interest rates with money set aside for the Treasury’s economic rescue plan. The way that type of program would work is that the government would step in and pay points to lenders – almost the same way that homeowners do when they take out a mortgage and want to pay points for a lower interest rate. Then the lenders would pass along those discounts to their customers free of charge. But interestingly enough, rates have come down despite the fact that the proposed government intervention has not yet happened. If Congress decides to implement what the NAR has suggested, it would mean that rates could go even lower, perhaps breaking all-time records. Under a new White House administration that could happen, but in the meantime borrowers are already enjoying extremely attractive and affordable rates on a variety of home loans.

Mortgage rates seem to be responding to the Federal Reserve’s decision to purchase about $500 billion in mortgage backed securities from mortgage insurers like Fannie Mae and Freddie Mac. Within the past 2-3 months, for example, rates on some home loans have fallen 1.5 percentage points or more. That translates into a monthly savings of $180-$190 per month on a typical $200,000 mortgage. Rates on 15-year loans are lower than they have been in more than five years, and the trusty and predictable 30-year fixed rate mortgage has hit a 50-year low.

Even adjustable rate loans are seeing decreases, because many of the indexes that determine their rates have been declining during the last few months. Using a 5-year ARM as an illustration, it is easy to see how ARM mortgages that were so out of favor last year have suddenly become much less volatile and more attractive. As an example, consider an ARM that is tied to the prevailing 1-year Treasury rate – a common scenario for these 5-year mortgages. Let’s say for the sake of this example that it began with a special low introductory 4.5 percent rate and will reset to the new Treasury rate plus an additional premium of 2.75 percent interest. If that kind of loan resets today it will drop it to an interest rate of only 3.25 percent – lower than the “teaser” rate it started with and considerably cheaper than today’s fixed-rate 30-year mortgages.

For someone planning to sell soon, an ARM may be a bargain. Others who intend to keep loans for the long haul, however, may be better off refinancing out of their ARM, into a fixed-rate loan. Many banks are offering 30-year fixed mortgages at rates that have not been this low since the 1950s, and grabbing one of those deals may be an exceptionally wise investment.

Also keep in mind that many ARMs have limits built into them that prevent the loan rate from going excessively high during a short period of time. That helps protect the borrower from an abrupt spike if rates surge upward, but it also regulates how low the interest rate can go in an environment of rapidly falling rates. So the benefits of resetting to current rates may be limited for those who have ARM loans with rate caps.

As these scenarios show, making mortgage decisions can be complicated. But a professional mortgage broker can help crunch the numbers to show all the different options.

Regardless of whether 2009 is a good year to hold onto a loan, refinance, or take out a new mortgage to buy a home, one thing is for certain. Rates are lower than they have been in decades, and they may not get this low again for decades to come.

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Jeffery Hammerberg is Founder and President of Gay Real Estate, Inc. – the nation’s largest group of companies connecting gay & lesbian home buyers and sellers to gay, lesbian and gay friendly real estate agents.