Mortgage rates have been at an all time low since the financial crisis in 2008 but experts are predicting that may change soon. 30 year fixed mortgage rates fluctuated between 4% and 4.5% for most of 2014. Freddie Mac is predicting that in late 2015 percentages could reach 5%. The Mortgage Bankers Association is predicting a more conservative increase to 4.4% in late 2015. Mortgage rates are based off of many variables so they are difficult to pinpoint an exact prediction.
The first of the variables that determine the mortgage rates are treasury bonds. There is a link between the 10 year treasury bond and the 30 year fixed rate mortgage. So when the rate of return expressed as a percentage for treasury bonds increases or decreases the mortgage rate does the same. Adjustable rate mortgages however are linked to the Federal Funds Rate. To find out more information about the differences between fixed and adjustable mortgages click here. Abbitt Realty is pleased to connect you with OVM Financial although you are welcome to contact the lender of your choice to answer any further questions you may have.
Following the financial crisis the Federal Reserve started purchasing Treasury Bonds and mortgage-backed securities to temporarily keep mortgage rates low. This process is called quantitative easing and in October the federal reserve ended it. This is a major reason for the predicted mortgage rate increase.
Freddie Mac predicts an average economic growth rate of 3.3% in 2015. Unemployment is continuing to decrease which is great for the economy. The strengthening economy raises mortgage rates. When the economy is bad the federal reserve lowers interest rates to increase the supply of money in the economy. With the economy strengthening that means interest rates should rise.
What this means for you?
If mortgage rates rise to 5% as predicted they will still be lower than historical averages. Mortgage rates leading into the recession were averaging around 6%. With a predicted increase in mortgage rates there has been a surge of borrowers refinancing and people buying. With a fixed rate mortgage it is best to buy a home now and not wait until rates increase. Locking in a low interest rate now can save you money in the long run.”People thinking of buying a house should act quickly to lock in today’s low rates,” says Dean Croushore, an economics professor at the University of Richmond and former Philadelphia Fed economist.
If you are looking to buy a home before the predicted interest rate increase check out the buying section of the Abbitt Realty website. Abbitt Realty would be pleased to connect you with one of our many experienced and knowledgeable agents to help you find the home of your dreams. If you are buying for the first time check out our previous post that can further guide you through the process.