Don't be lulled by mortgage rate stability

September 11th, 2013

Thirty-year mortgage rates have remained in a narrow range of just 7 basis points over the past three weeks. Does that mean they've finally leveled off? Recent history suggests you shouldn't bet on it.

Throughout the climb in mortgage rates over the past four months, there have been two previous stable periods, both of which have been followed by jumps higher. In June, 30-year mortgage rates spent three weeks between 3.91 and 3.98 percent, before jumping to 4.46 percent. In late July and early August, there was a five-week stretch where mortgage rates stayed between 4.31 and 4.40 percent, before jumping up to 4.58 percent.

So, while mortgage rates have stayed between 4.51 and 4.58 percent over the past three weeks, that doesn't mean there isn't another jump coming. Therefore, here's what mortgage shoppers should be doing:

  1. Potential buyers need to be decisive. Use a mortgage calculator to see what you can afford to buy at these rate levels, and then start looking immediately in that price range and just below. Be energetic about going to multiple open houses -- the more properties you see in your price range, the better you'll know the market and be able to make up your mind when you see the right house.
  2. Have a "what's next" plan. As long as rates stay in a range of 10 basis points or so, it shouldn't really affect your buying plans, but use a mortgage payment calculator to see what would happen if rates rose by 25 basis points or so. At that point, do you lower your price target or get out of the market for the time being?
  3. Homeowners should explore all refinancing options. The easy refinancing opportunities went away when rates stopped dropping, but while they've leveled off it may be your last chance to use a refinancing calculator to explore other options for capturing a lower rate such as switching to a shorter loan or even considering an adjustable rate mortgage if paying off your loan within a few years is within your means.

Between housing prices and mortgage rates, the real estate market often requires you to chase a moving target. Any pause in the movement of mortgage rates should be seen as an opportunity to act, not as an invitation to take your time.

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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