Budget deal leaves mortgage rates stable -- for now

October 23rd, 2013

Financial news this week was dominated by the deal to end the government shutdown and raise the federal debt ceiling. Even as they breathed a sigh of relief, many Americans were probably left wondering "what does this mean for me?"                                          

For potential mortgage borrowers, the deal means you probably won't see a sudden, drastic rise in mortgage rates, which was one possibility if the government had been forced to default on its debt obligations. However, looking longer term, don't be surprised if mortgage rates begin a steady climb back toward more normal historical levels.

No drastic shock -- this time

The nightmare scenario for mortgage rates was that a US government default might well have created a global credit crisis. In such a crisis, liquidity would have been hard to come by -- which means it would come at a steep price. Interest rates could well have soared under such a scenario, including US mortgage rates.

Instead, with no default imminent, what's left is an environment in which mortgage rates appear to have stabilized. Better yet, those rates have stabilized while still at relatively low levels. According to mortgage finance company Freddie Mac, 30-year fixed-rate mortgages were at an average rate of 4.28 percent as of October 17, and have fluctuated within a tight range of just 10 basis points over the past four weeks.

For would-be home buyers who have been nervously watching rates fluctuate while they go house-hunting, this stability should be welcome. In fact, rather than running fresh figures on a loan calculator every time there is a slight fluctuation in rates, as long as rates are relatively stable, you can work within a range of high- and low-rate scenarios.

Run two sets of figures on a mortgage calculator based on rates 10 basis points lower and 10 basis points higher than today's rates, for a total range of 20 basis points. That way, you'll know what your options are as long as rates stay within that range, and you won't have to consult your loan calculator again until rates break out of that range.

Still, that doesn't mean you can get complacent about mortgage rates. A unique set of conditions has led to unusually low rates in recent years, but as time goes on, expect rates to trend back toward historical norms.

Posted By :

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

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