The beginning of the end of super-low mortgage rates?

May 29th, 2013

A three-week surge in mortgage rates pushed 30-year rates up by 24 basis points, to a level of 3.59 percent. Is this the beginning of the end for super-low mortgage rates?

Mortgage finance company Freddie Mac reported on May 23 that mortgage rates had risen for their third consecutive week. Trying to assess whether this is beginning of a long-term trend toward higher rates depends on resolving the somewhat muddled backdrop against which that rise in rates has occurred.

A muddled backdrop

What makes it hard to determine which way rates will go next is that recent weeks have been marked by signs of a generally strengthening economy and sharply weakening inflation. These signals have contradictory implications for mortgage rates, since economic strength would tend to lead to higher rates while easing prices would encourage lower rates.

Further adding to the confusion is the increasing speculation about when the Federal Reserve will discontinue its monetary easing program, which has been instrumental in driving mortgage rates down. In testimony before Congress, Fed Chairman Ben Bernanke indicated that might happen in a matter of months, while some interpreted the latest Fed meeting minutes as suggesting it might come even sooner.

Whether it's sooner or later, one message is clear: Borrowers need to adjust to the certainty that today's super-low rates won't be around forever.

Mortgage calculator options

Whether you are a potential buyer or a current home owner thinking of refinancing, a loan calculator can help you assess the dollar impact of the latest change in rates -- and those changes still to come.

A simple mortgage calculator can help you see how rate changes will affect your monthly payments, while a refinancing calculator can show you a comparison between your current mortgage and a new loan at today's rates. While borrowers tend to focus most on the size of their monthly payments, you should also run some scenarios through an amortization calculator to see how your total borrowing cost over the life of the loan would be affected by choices such as different loan lengths and different down payment sizes.

Whatever changes in rates the weeks ahead might bring, you can't really put them in perspective until you translate them into the dollars-and-cents impact on your situation.

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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