A look at where rates on home loans are headed in the new year

7 things to know about mortgage rates in 2009

It wasn't too long ago that mortgage rates were expected to move sharply higher in the coming months thanks to rattled investors and mounting inflation. But while falling home prices and jittery financial markets have done little to assuage investor fears, a number of recent developments have combined to create a decidedly optimistic mortgage-rate outlook for 2009. "The preponderance of forces that would typically operate on mortgage rates — the economic backdrop, the inflation backdrop and, in this case, government policy — are all pointing towards lower interest rates," says Mike Larson, a real-estate analyst at Weiss Research.

Rates have already become increasingly attractive. The average national rate for 30-year fixed mortgages fell to 5.57% in the week of Dec. 5, from 6.61% just seven weeks earlier, according to HSH Associates. Here's a look at where mortgage rates are headed in the new year, the forces that will be influencing them, and how consumers can take advantage of the trends.

1. 2009 rate outlook: Thirty-year fixed mortgage rates should begin 2009 at around 5.5%, says Keith Gumbinger of HSH Associates. From there, they will "wax and wane" in the 5.5% to 6% range, before closing out the year somewhere between 6% and 6.25%. "That's still very attractive," he says. "There is no reason to think that rates are going to go up so substantially so as to erode the marketplace." (However, should the economic outlook improve more quickly than expected, mortgage rates could trend higher, Gumbinger says. In addition, new government programs unveiled next year could alter the projection.)

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