Every prospective homebuyer hopes to capture the best possible interest rate when applying for a mortgage loan. With the topsy-turvy housing market and general state of the economy over the past few years, lucky homebuyers have been able to snag some extremely attractive rates. But with the economy headed gradually in a positive direction, the Federal Reserve won’t maintain such low interest rates forever.
While no one can be certain exactly what the mortgage interest rate picture might look like in several months or a year, most mortgage bankers agree that rates will rise over the next twelve months – perhaps rising above the five percent mark as soon as the second quarter of 2014. This is quite a change from the extremely low rates seen just a couple of years ago, although it should be mentioned even these increasing rates are still very low when compared to the higher rates seen during the last several decades leading up to the housing bust.
What is the reason that rates are projected to rise? One contributing factor is that the Federal Reserve has been purchasing bonds in the amount of $85 billion per month in an effort to keep mortgage rates down. During 2014, with the economy looking healthier, the Fed is beginning to taper that program slowly, and it may drive interest rates back up. Of course, the state of the economy is driven by a number of factors including unemployment, inflation and consumer demand, so the bond-buying program is only a component of the big picture.
What does this mean for homebuyers? Put simply, prospective buyers should not waste time in shopping for a mortgage. With more stringent lending guidelines and new policies governing the terms of what constitutes a qualified mortgage, the application process may take a little longer than it has in recent years. Anyone looking to buy a home should begin the loan pre-approval process as soon as possible in order to lock in the most attractive rates possible before they begin to rise.
Although it’s most likely that rates are set to climb slowly rather than skyrocketing upward, every tenth of a point means dollars added to monthly payments over the life of your mortgage. Savvy buyers will want to lock in a low interest rate while they can. If you’re on the fence about buying a new home, waiting could cost you.
If you are in the market for a new home, talk to an experienced loan officer to learn about which mortgage will be best for you. As rates change, he or she can help you determine which mortgage type and term make the most sense for your personal and financial situation.