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Which Direction are Mortgage Rates Headed?

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j0283199We have all seen the headlines this past week, mortgage rates are up but are still under 5 percent. The Mortgage Bankers Association reported that a 30 year fixed mortgage rose to 4.73 percent from 4.61 percent and Freddie Mac released their weekly survey showing the average rate on a 30 year mortgage rose to 4.87  percent from 4.78 percent.

Mortgage rates did rise this past week but the general consensus is rates will stay low for awhile.  In fact there is even talk of 30 year mortgage rates hitting a low of 4 percent to 4.5 percent sometime this year. There is a number of factors keeping rates low. First and foremost is the economy, we are experiencing the worst economic contraction since the early 80s and as a result the Federal Reserve Bank has been keeping the Fed Funds rate at a target of 0% to .25% to jump start economic activity.

The Feds have also announced a program to buy up to 1.25 trillion of securities, including mortgage backed securities. The idea is to let banks and financial institutions unload some of these securities that they have been unable to sell which will free up capital to make more home loans. Hopefully this time around banks will be smart about whom they approve for mortgages.

Another program the Feds have announced is a program to buy up to $350 billion in Treasuries, further driving long term interest rates down.

These programs, along with the stimulus package that included a $8,000 credit for first time home buyers, will hopefully put a floor on the housing market and lead us out of this recession.

As for the direction of mortgage rates, they will probably stay low for now. Rates might go down further but not by much. If you look at a historical chart of 30 year mortgage rates they are extremely low right now so you should probably pull the trigger if you are thinking about refinancing or buying a new home. Every 1 percent rise in mortgage rates will raise your monthly mortgage payment by $63 for every $100,000 borrowed. Over the lifetime of a 30 year mortgage that can lead to ten of thousands of dollars.
Author: Brian McKay
April 10th, 2009