Current Mortgage Rates
We are seeing an increase in the mortgage rates after a another major sell off in the MBA ( mortgage backed securities ) in the past week. The MBS prices have dropped by 200 basis points , which has pushed up the 30 year fixed rate mortgage to 5.37 % from 4.87 %, that is almost a full percentage point in the past 2 weeks alone.
So why is this happening ?
One thing that is happening is that investors are avoiding treasury debt or risk averse assets, in turn to seek out higher more profitable returns in the stock market. If you are waiting for the interest rates to drop below 5% then this may not be such great news. When the economy grows weak, the Federal Reserve will employ a more lax momentary policy which helps to keep the mortgage rates lower. Obviously when mortgage rates are low , this in turn stimulates the economy by offering more incentive for homeowners to refinance their mortgages therefore making their homes more affordable. This gives people more in pocket money in which contributes to economic stimulation.
Current Mortgage Rates
The Employment Situation Report release for June 2009 showed that salaries were less than what experts had forecast, wages were expected to rise by 2% but only showed an increase of 1%. , it also reported a job loss rate of 345,000 for the month of may, which resulted in an increase in the unemployment rate from 9.2% to 9.4% . After the release, the MBS immediately dropped by a full 100 points which in turn has pushed up the interest rates.
If there is a rise in the unemployment rates, investors will lose confidence in purchasing mortgage backed securities for fear that homeowners can potentially face economic hardships due to a higher possibility of losing their jobs. If a homeowner defaults on the mortgage payments, the investors that purchase MBS’s will take the loss. Remember a decrease in the MBS market creates a rise in the mortgage rates and that is exactly what is happening to the market. This is how the employment rate directly affects mortgage rates in this manner.
So the big question is what will the Federal reserve do to keep mortgage refinance initiatives alive ? So far we haven’t seen much in response in regards to the issue at hand. Will we need rates below 5% to get the economy rolling again ? Will we ever see sub 5% mortgage rates again ? These are some tough questions that only time will tell, in the meantime , how can the real estate and housing market recover if the interest rates keep increasing ?
So how does this affect you if your were looking to refinance your home yet are now holding back due to these current mortgage rates.? Well one consideration is if you are not planning to stay in your home for more than 7 years , you may want to opt for an adjustable rate mortgage. How a Current 5 year adjustable rate mortgages works is that it entails a fixed interest rate for 5 years which is then followed by a twenty five year adjustable rate, these are still currently at 4%. So there is still some maneuverability if you are know you are planning to move within the next few years.
You may want to consult a professional on how and ARM loan amortizes if your are considering getting an adjustable rate mortgage.
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