Is it Possible to Predict Mortgage Rates?

Mortgage rates can fluctuate rapidly. With these unexpectedchanges, it can be hard to know exactly when to lock in a rate. Could you havesaved money if you waited one more month? Or did you stall too long and miss awindow of opportunity? Wouldn’t it be easier if there were a concrete way topredict mortgage rates?

No one can predict mortgage rates precisely, but if you pay attentionto a variety of factors, you may begin to notice a trend. Unfortunately, evenkeeping an eye on the trends in mortgage rates will not tell you exactly whenit is the best time to lock in a rate.

While it may be impossible to guarantee that you are lockingin the lowest available rate, you can get a good interest rate by payingattention to the market and knowing what to look for.

In the past, it was much simpler to predict mortgage rates.They would typically follow the interest rates of corporate bonds, but lagbehind by anywhere from six months to a year. And while this would not make itpossible to determine the exact mortgage rate, it would provide some insightinto whether mortgage rates were trending up or down.

This method was very effective when a bank or credit unionmade a loan and held that loan for the duration of the term. Today, that is nothow lending works.

A mortgage is originated at a local bank, but it is thenbundled and sold. Because mortgages are now considered investment vehicles, itis important that the interest rates be competitive enough to attract attentionfrom potential investors. The mortgages are pooled into an investment groupcalled mortgage backed securities.

These securities have the same type of appeal as bonds, andthe interest rate is typically comparable to that of a ten-year treasury bond.While the interest paid on a mortgage-backed security is higher than that of aten-year Treasury, they will typically follow the path of the Treasury bond.For example, if interest rates for Treasury bonds drop, expect mortgage ratesto drop as well.

Another consideration for predicting mortgage rates is thecurrent rate of inflation. When inflation gets higher, mortgage rates go uptoo. And conversely, low inflation rates usually mean lower interest rates. Thereare, however, exceptions to this rule. If the federal government is working tostimulate the economy, mortgage rates may remain artificially low, even asinflation rates increase.

Finally, look at what large, national lenders are doing.Although there is no reason to expect all lenders to follow along with whatthese large lenders do, they often do. The business section of your localnewspaper will probably tell you everything you need to know about what lendersare doing across the nations. Depending on where you live and the economicclimate, you may see similar results within days or weeks. While the mortgagerates may not be the same, the trend will be.

While following these basic rules will give you an edge overless informed consumers, there are other factors that will affect your personalmortgage rate. Lenders look at individual borrowers when determining what ratethey offer to a customer. A person seeking a mortgage that has exemplarycredit, a hefty amount of money to pay for a down payment and some extra cashto pay on points will have a lower mortgage rate than someone who has someblemishes on their credit, little money for their down payment and not enoughextra money to pay any points.

It is also important to understand the difference between afixed rate mortgage and an adjustable rate mortgage. Fixed rate mortgages aretypically higher than adjustable rate mortgages. The adjustable rate mortgagemay seem like a better deal, but often the adjustable rate mortgage resets at ahigher rate than the fixed rate mortgage.

It is important not to waste too much time worrying aboutmortgage rates. While we all want to save as much money as possible when buyinga home, at some point you have to make the commitment to invest the money andclose on the loan. While it may seem like a mortgage is a lifetime commitment, inmany cases it is possible to refinance a mortgage.

If mortgage rates drop, speak to your lender. Some lenderswill expect you to go through the entire lending process again whenrefinancing, while others will allow you to refinance without a new appraisal,deferring many of the closing costs. If your lender seems unwilling to workwith you on this, shop around. You may find a better deal, or you may find thatyour current lender is more willing to work with you in an effort to keep yourloan in house.