What’s with these mortgage rates?

The big question on everyone’s mind right now is; what’s with these interest rates?  Beginning on Thursday, May 21, rates began to move up, dramatically.  They are now a full 1% higher than they were just a couple of short weeks ago.  What’s going on, and will they come back down?  How many of you procrastinated about refinancing, now think you’ve missed the boat?

Here’s how I see it.

One of the tactics the government has used to help curtail foreclosures is to keep mortgage rates as low as possible.  This enables current homeowners to refinance to lower rates which hopefully will keep them in their homes.  It also enables new buyers to come into the market to help absorb some of the current inventory.

It’s enlightening to see where we’ve been in the past year. Below is a chart of 30-year bond yields.  I’ve given you a full year view, to put things in perspective.

30-year treasury yields

30-year treasury yields

 What caused this sudden spike in rates?  Let’s go back a bit.  Why were they so low to begin with? 

As more and more doom and gloom hit Wall Street in late 2008, money flowed to what were considered “safe” investments – treasury bonds.  In addition, in March of this year the Fed announced it was buying up to $1.25 trillion in Mortgage Backed Securities over the next several months to help lower rates even further.  Supply and demand – as the demand for bonds went up, the bond prices went up.  When bond prices rise, rates fall.  The result is that mortgage rates fell to levels we haven’t seen since the thirties.

So what now?  Why the spike?

The simple answer is that the best laid plans only work when Wall Street plays along.  So far, all this cash being thrown at the problem hasn’t helped so the effect is loosing steam.

What will happen?  If you have a loan pending should you lock your rate?  The answer to that is it depends on your current mortgage.  If your rate is in the 6’s, or if you have a rate adjustment coming up, it may make sense to lock the rate today.  As I write this, rates are looking a bit “soft” but not enough for us to get excited.

Sign up for Entertainment Mortgage’s rate watch.  You’ll get a weekly email showing the rates on that day.  It won’t be tailored to fit your particular situation, but you will be able to follow the general direction of rates.

Or, better yet, request a refinance analysis.  The only way to make an informed decision is to see in black and white, a comparison with your current loan.

Either way, hang on tight.  We’re in for a bumpy ride.

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