0 Mortgage Rates Trends

Nowadays, home mortgage rates are moving steadily lower. The 30 year fixed mortgage rate is hovering near the 3.375% region and it is expected to stay below 3.5% for a long period of time. Lenders are also extending credit at reasonable rates, with most lenders charging an interest rate of 3.5% and some at 3.25%.

Mortgage rates are heavily influenced by the prevalent interest rate and the 10-year treasury auction is a good indicator of the performance of interest rate. While mortgage rates are not directly based on Treasury rates, the underlying securities (also known as mortgage backed securities) tend to trade in the same direction as Treasuries. A big move in the 10-year Treasury yield can result in huge volatility on the mortgage rates.

Inflation does have an impact on mortgage rates as well. It is an early indicator of the behavior of mortgage rates. With increasing real estate values and a period of very low inflation, interest rates have remained on an all time low. Many economists feel that mortgage rates will remain fairly low in the future because inflation rate is running extremely low at the present moment.

Most mortgage lenders offer a combination of interest rates and points, for instance 6% and 2 points or 7% and no points. Points consist of a one time upfront payment made to the lender at the time of the closing of the mortgage. It is an additional fee on top of the mortgage payments and it is not part of the down payment. A sharp reduction in mortgage rates will result in a reduction in the cost of borrowing and an increase in prices in markets where money is borrowed by most people to purchase a home. In this scenario, the average payment will remain constant.

During periods of low mortgage rates, most homeowners opt for greater savings via refinancing. Some of the benefits of refinancing at the right time include lower interest rate, consolidation of the second mortgage loan, lower loan terms, lower monthly payments and taking a substantial cash out from equity. Borrowers who refinance also have the option of reducing either their monthly payments or the length of the loan term. It is not impossible to reduce mortgage terms from 25 years to 15 years while maintaining the same monthly payments. In the event that mortgage rates move even lower, borrowers can take the opportunity to reduce it by another five years.

Taking cash out from home equity to pay off credit card debt is another benefit of low mortgage rates. Certain debt consolidation loans also allow borrowers to reduce payment on home mortgage so that the money can be channeled to repay credit card debts, which bear interest as high as 18 to 25%.

Many lenders have come up with their own perspective for the direction of mortgage rates. Mike Owens, a partner with Horizon Financial opines that mortgage rates will continue to slide from its present territory of 3.375%. According to him, it is a good sign because the economy has remained stable so far. Victor Burek of Open Mortgage notes that the 10-year Treasury rate will be kept under 1.87%. As long as the rate stays below 1.87, he will continue to float and only lock in within a few days of closing. On the other hand, Steve Chizmadia, a mortgage consultant with American Capital Home Loans, feels that the treasury and mortgage backed securities market have been very quiet for the past few weeks. The energy that has built up over the last few weeks could potentially lead to a strong movement in rates in either direction. Julion Hebron, a branch manager at RPM Mortgage, has a different opinion. From his point of view, a strong economy will keep the bid for mortgage backed securities healthy and it is less likely for mortgage rates to drop further from current levels.

Suffice to say, even though mortgage rate is close to its all time low, it has risen moderately and there is a greater risk of loss from the practice of floating. Unexpected events can cause rates to move strongly in either direction. Things to look out for this year would include legislative actions in response to US debt ceiling and the Fed's outlook regarding securities purchase.