Interest Rates

Making Sense of Mortgage Interest Rates

Mortgage Rates

We talked to some local bankers and investigated some economic indicators about U.S. interest rates and this is what we found out.

With the ten year treasury falling to near an all-time low, people in the U.S. have enjoyed unprecedented low interest rates on mortgage loans. And, with rates so low right now, it is more often much cheaper to buy a home than rent.

First time home buyers have never had a better opportunity than right now to get more bang for their buck on a new home. Lower interest rates translate into lower payments. Lower payments mean a lower debt to income ratio. A lower DTIR means you may qualify for a bigger house. It’s a beautiful flow of numbers that work in the homebuyer’s favor.

Buyers who are upgrading into their second home are feeling the love as well. Some have even kept the same payment although they upgraded to a bigger house!

It would be wonderful if the river of low rate happiness could smoothly flow on forever but there are signs of rapids ahead.

Here are a few things that can and probably will affect interest rates in the near future:

  • Interest rates can only go up from here-If you are waiting on even lower rates than we have right now to buy a home, I wouldn’t hold my breath. The mortgage market tends to follow the ten year Treasury note interest rate and that rate is already near record lows. The Fed is only going to raise rates from here. The Fed has already begun raising national interest rates recently and mortgage interest rates will follow suite.

Interest Rates Rising

  • Oil is a player in the game-Oil prices are a contributing factor to interest rates and we are also seeing near record lows in this industry as well. The price of a drum of oil is at early 1980’s prices. It’s not going to get much cheaper than it is right now.

Oil Prices

That being said, Russia and Saudi Arabia have agreed to freeze output levels at January rates. If supply falls as a result, prices will likely go up and so will interest rates. Consequently, organizations like ISIS are primarily funded by oil. When prices go up they become better funded and intensify operations. All it takes is one major conflict in the Middle East to send oil prices rocketing back up to previous highs.

  • It’s an election year-Typically interest rates increase as we near a major election as uncertainty about who will be leading and what they will decide about key economic factors that affect the global market will be.

2016 Election Year

Bottom line: Interest rates are good right now, really good. If you can lock in a rate of 3-3 ½% as they stand right now, you may never have to refinance your house again!

Now is the time to buy. I know you’ve heard it before but take it to heart this time. Some of the bankers we talked to speculate that rates could be on the rise in less than 90 days from now.

If you are planning to sell, do it. Buyers are in a better position than ever to qualify for financing. That means more buyers for your home. As rates rise, financing will become more difficult and people will be more reluctant to buy a home.

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