Are Mortgage Rates Going Down?
Just when someone says that there is no way that mortgage rates could go down any lower, they seem to drop a little more. Indeed, the average rate on a 30-year fixed mortgage is right around 4.27% as of the first week of October 2010. On 15-year fixed mortgages, the rate is below 4%. It seems as though a floor might have been reached, but one never knows. If the current course remains the norm, we might even see 30-year fixed mortgages below 4%.
How Mortgage Interest Rates are Determined
You know that your credit score and local market can influence what interest rate you as an individual gets on a home loan, but how is a national benchmark determined?
Part of the reason that the mortgage market functions is because it is a market. Mortgages are bought and sold – and packaged into securities. This way, loans move off the balance books of local institutions, freeing capital up for more mortgages. Mortgage investors buy up the home loans, hoping to earn a return as the mortgages are repaid with interest.
Investors can either keep the loans in their own investment portfolios, or they can (as is more common) invest in mortgages that have been bundled together into securities. These securitized mortgage bundles can be trade similar to the way bonds are traded. Securitized home loans can also be included in funds.
Since there is a market for securitized mortgages, it only makes sense that there is fluctuation – just as you would see with a stock market or a bond market. It is this market that has one of the greatest influences on what happens to mortgage interest rates. What is happening with the housing market can also influence mortgage rates. When the market is slow, mortgage rates remain low in order to attract more borrowers to boost home sales.
If you are looking for an indication of what mortgage rates might do (e.g. because your are considering a refinance), you can look at 10-year Treasury notes. These are considered indicators of what is happening on the mortgage market. When Treasury yields move higher, there is often a good chance that mortgage rates will move higher as well. Right now, with Treasury yields rather low, it is little surprise that mortgage rates are also down.
Will Mortgage Rates Stay Low?
As long as the economy is languishing and the housing market sluggish, there is a good chance rates will remain relatively low. Also, with investors looking for lower risk investments, such as reasonably safe debt, there is no reason for high rates to attract investors. Those selling debt don’t need to pay higher interest to those buying their debt. All of these things mean low mortgage rates for now.
But later, as the economy begins to recover, the story may change. The Federal Reserve will have to stop the quantitative easing at some point, and Treasury yields will begin rising as the economy improves and investors demand better returns. However, some believe that it will be at least a year before any of that happens.
In the immediate future, though, there is enough market volatility to cast some measure of doubt on what will happen next, and there is a chance that rates could head down again. Even if mortgage rates do not drop further, they aren’t likely to rise rapidly any time soon.
This article is by Nathan Richardson the advertising director of ComplexSearch. ComplexSearch offers consumers the best bank rates, consumer banking product reviews and certificate of deposits rates.