Will Mortgage Rates Get Worse?

Will mortgage rates get worse? People have been asking that question for some time and the results are fairly surprising: During the past year rates which were low in 2011 are lower still in 2012.

Figures from Fannie Mae show that fixed-rate, 30-year, mortgage loans are now available at 3.9 percent. That’s .90 percent less than a year ago when the same conventional loan was priced at 4.8 percent.

Dropping almost a full percent is a big deal. The $150,000 loan that would have cost $787.00 per month last year for principal and interest is now down to $707.50. That’s a savings of $79.50 per month or $954 per year.

You look at these numbers and wonder: How long can such low mortgage rates continue? Will FHA mortgages, VA loans, and conventional financing loans continue to be available at bargain basement prices?

Mortgage Rates

It’s surprising to see such low rates today. With an economic recovery there should be more demand for capital and thus rates should rise. And while there has been some evidence of improvement in the national economy the numbers show that real estate borrowers can still get financing at rates near historic lows.

The US continues to enjoy a massive advantage in the financial field because this is where capital flows. It may be true that other economies are growing faster but it is only in a few countries where investors have the financial and personal security we take for granted in the US.

Will such low mortgage rates continue? Pent-up housing demand, a growing economy and reduced unemployment could certainly increase mortgage activity and thus push up rates. Alternatively, a new conflict in the Middle East would inevitably raise oil prices, damage the economy and force mortgage rates higher.

Mortgage Rates & National Policy

Given such terrific rates today is it possible that the solution to many of our mortgage problems is really at hand? Why not refinance mortgages at today’s rates — say loans from borrowers with a 640 credit score and 12 full and timely payments in a row? Most current mortgage owners would be paid off in full, meaning a lot of financial books would look better.

Refinancing would also help borrowers by moving them to loans which cost less and lack such things as prepayment penalties and “gotcha” clauses left over from the toxic loan era. With lower monthly costs loans would be less risky and households would have more disposable income. Such changes would translate into fewer foreclosures, more local spending and perhaps even rising home prices.

In the end we have remarkably low mortgage rates. The question is:Will we do something with them or just let an historic opportunity roll by?

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