Mortgage Rates are Headed Up—or Down

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According to a recently conducted survey from the Mortgage Banker’s Association, 39% of prognosticators say mortgage rates will go up, 27% suggest that they will go down, and 34% think that interest  rates will remain the same. So there you have it, folks, opinions from the mortgage experts. And you can bank on them.

While statements from the so-called mortgage experts may not be definitive, there are  some current news items that may help people to decide whether or not now is the time to look for a new mortgage.

Because Bank of America said that it might have to repurchase more than $47 billion in investor loans, the stock market reacted as if it had been punched in the gut. The result was a large move out of the market and into Treasuries. The benefit for borrowers was a tiny drop in interest rates during that week.

In general, the cost of a mortgage is at historically low numbers, and it is these numbers, currently 4.19% for a 30 year mortgage, and 3.60% for a 15 year mortgage, that may offer some hope for a moribund housing market.

Houses are more affordable because prices have fallen close to 47% on average since the peaks of 2006. For homeowners with at least 20% equity in their homes, refinancing is now very affordable. With refinancing typically comes home refurbishment, and that means a possible bump –more like a pimple, perhaps—in consumer spending.

By the way, for those people who are thinking about refinancing their homes, here are a few thoughts to consider before applying to your friendly neighborhood bank for a loan:

Do you have any equity in your home? Believe it or not, it may not be necessary. If you have at least 20% equity in your home that’s a big plus, because you’re likely to get the lowest prevailing rate. But if you have low or no equity, there are still options available – even for people who are upside down.  

Do you have a credit score of at least 600? If so, you have a fighting chance. Today, that is the minimum score. Better, by far, to have a 720 or above, because then you qualify for the low rates that appear in all the advertisements.

Do you intend to remain in your home for at least another 5 years? If so, look to a mortgage refinance at today’s low rates. However, if you’re not looking past another 2-3 years, the option you need is a no cost refinance. While that sounds good, because the lender pays your closing costs, the net result is that you will pay at least ½ per cent over today’s prevailing mortgage interest rates.

Do you have a adjustable rate mortgage? Right now, they’re headed down. Before the current real estate debacle, adjustable rate mortgages were for cause for alarm. Right now, many who hold those adjustable rate mortgages are rejoicing. However, nothing lasts forever. If you’re staying more than another 5 years, refinance that adjustable rate mortgage today—because as mentioned above, 39% of bankers say rates are going up.  Someday.

Marc Jablon, Realty Associates
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Marc Jablon