Mortgage Interest Rates – The Big Question

Understanding the how and why behind today’s bouncing mortgage interest rates almost requires a degree in economics.

It also requires understanding of how both the stock market and the big banks react to events affecting the global economy, news from the Fed, the monthly jobs reports, and changes in the gross national product.

Since all these factors are volatile, mortgage interest rates seem to be blowing about in the storm, and right now they’re riding on an updraft.

The latest panic comes from the Fed announcing that it might begin to curtail the purchase of Treasury bonds and Mortgage Backed Securities sooner than originally planned. This announcement has in turn caused investors to begin selling off Mortgage Backed Securities, causing prices to drop and mortgage interest rates to take a sharp and sudden rise.

Until the June meeting, lenders believed they had until 2014 to keep receiving these large influxes of cash. Now the “end date” could be as soon as September.

Much will ride on the July 5 jobs report. A drop in the unemployment rate will lead to higher mortgage interest rates, while greater unemployment could cause rates to dip yet again.

In a volatile market such as this one, borrowers must gamble. Should they let their rate float and hope that it will drop before closing, or should they lock the rate now because it could be higher by the time they’re ready to close?

Financial analysts can’t agree on what will happen next, but most agree that if you can lock your rate now, it’s probably a good idea. Yes, rates could take another dip. But if you’re being offered a lock on a rate that gives you an affordable house payment, taking it now will prevent the daily stress of watching rates buffeted about in the storm.

Constantine Floropoulos of Quontic Bank was quoted on Mortgage News Daily as saying: “…the table has been set for higher rates. Soup, salad, & appetizers are served, main course on its way….question is how is your digestive system?”

Instead of being upset at paying more than 4%, we should remember that while mortgage interest rates dipped and stayed below 4% between June 2012 and June 2013, today’s 4.375 – 4.5% is still a very favorable rate for borrowers. Those who were around in the 80’s remember rates that bounced from 10% all the way up to more than 16%. It wasn’t until 1992 that rates dropped to the 7’s, where they hovered for nearly 10 years. Even during the housing boom, when prices had skyrocketed, rates were in the 6’s.

Now prices are down and rates are still low. It’s a good time to buy a home in Texas.

Mike Clover
Mortgage Banker
www.mikeclover.com