When will mortgage rates rise?

Interest rates on mortgages and other home loans have been at historically low levels for some time. But mortgage rates could rise next year as the nation’s economic situation improves or if inflation becomes a concern.

Borrowers who expect today’s low mortgage interest rates to continue indefinitely, courtesy of the Federal Reserve, may be disappointed. The Fed doesn’t directly control the rates borrowers pay on home loans, but even if that were the case, the Fed has already lowered its benchmark rate to near zero. That suggests there is not much room for mortgage rates to fall further than today’s low levels.

Why rates could rise in 2010

Moreover, the Fed may raise interest rates if inflation, which also has been at very low levels, begins to rise next year. Inflation, which refers to price increases in the economy, is always a concern because higher prices can stunt economic growth and expansion.

The Fed also has decided to end two government programs that have added support to this year’s low interest rates. One program was to buy up $300 billion of long-term U.S. Treasury securities. The other program was to purchase $1.25 trillion of securities backed by mortgages. The first program has been ended, and the second is slated to wrap up at the end of the year.

Borrowers shouldn’t wait for lower mortgage rates

Many borrowers spend months trying to time the market to get the lowest possible rate on a new or refinanced home loan. But that lowest possible mortgage rate is often more myth than reality, and many borrowers would be better off if they acted sooner rather than run the risk that rates might rise suddenly, unexpected and quickly.

It’s helpful to understand that interest rates on home loans fluctuate daily and can change throughout the day as well. That means a low rate on a specific loan product at 10 AM might be gone just a few minutes later. Very few borrowers are truly in a position to grab that lowest-of-the-low rate before it disappears; however, most borrowers can still qualify for an attractive and affordable mortgage rate, even if it’s not the rock-bottom lowest rate.

There’s no guarantee that today’s low interest rates will continue in 2010. And if rates do start to rise, they could move much higher surprisingly quickly. That means borrowers who’ve tried to time the market could be caught off guard. Those who are ready to refinance now may not want to take that risk.


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