The big question every potential home buyer asks is what is the trajectory of interest rates — are mortgage rates going to go up soon? Depending on who you ask, you can get very different answers.
30 year fixed mortgage rates were climbing steadily in 2008, but in the last two to three years, since the financial meltdown, they have stayed unusually low. Dips and rises have been seen here and there, but for the most part, the 30 year fixed mortgage rate, which is the ruler against which all other mortgage rates are tracked, has stayed below 5% in 2010 and averaged out at 4.7% for the year. So what does this mean if you are buying a home in the next few months, or even the next year?
Watching the mortgage rates on a daily basis feels like playing roulette in Las Vegas. If you lock in at a certain rate and the mortgage rate goes down, you can’t change your mind and lock in again. It’s a gamble. It means you should educate yourself on what stimulates the interest rates and watch those reports closely.
What should you watch? Because mortgage rates are determined by investors buying and selling loans, it can be dictated by the fears and concerns of those investors. If the investors are nervous about the economy and start selling home loans, then the mortgage rate will change. If news reports come out with certain information that cause people to take action and refinance or make an offer on a house, that affects the interest rates as well. By the time people hear the information and react to it, the interest rate has already risen.
Rather than using the media for interest rate information, it is best to hit the keyboard and start researching the internet or calling a reputable banking professional to confirm your findings. Watching the unemployment data is also a good indicator of mortgage rate trends. High unemployment and recession cause interest rates to go down. So as long as unemployment remains high, mortgage rates are likely to stay low, as in below 5%. While that is good news, not everyone feels that this new economic climate will play by the old rules, so there is still a lot of contention about where rates will go.
Rate drops make sense in the grand scheme, considering that when people have less money, the interest rates drop to encourage them to borrow money. This does seem a bit backwards however since unemployed people have a difficult time paying back the money they borrow. They are a high risk. High risk borrowers drive the interest rates up. But debt seems to be the American way, whether you have money or not.