Where are Mortgage Rates Going?

Mortgage rates, like so many other pieces of financial information, tend to fluctuate, rising and falling as the general condition of the economy changes. Loan rates are influenced to a great extent by what’s known as the secondary mortgage market. This is made up of national investors, like Freddie Mac and Fannie Mae, who buy mortgage loans from primary lenders.

Mortgage rates tend to fall as the economy slows, and investors predict that mortgage rates will be cut by the Federal Reserve in the future in an effort to help improve the economy. In the same vein, when the economy begins to show signs of recovery, mortgage investors speculate that interest rates will be raised soon as a means to control inflation and economic growth.

There are certain reports that are fairly reliable indications of which way mortgage rates are going. The top three reports include:

1.      The Consumer Price Index – This report is considered to be one of the more important ones to indicate inflation trends. Home mortgage rates tend to follow the rise and fall of inflation, with higher rates when inflation increases and lower mortgage rates when inflation is on the decline.

2.      The Employment Cost Index – The rise in hourly wages, salaries, and benefits has an influence on mortgage rates as well. When labor costs rise, businesses generally raise their prices, and mortgage rates tend to go up accordingly.

3.      The Gross Domestic Product – This is the tool used to measure the economic output of the country. When growth is strong, supply cannot keep up with demand and businesses are able to charge more. This can produce an increase in mortgage rates.

Some experts in the mortgage industry claim there’s no real way of predicting the direction of mortgage rates, stating there are too many variables that can play into whether they go up or down. The surest statement is that they will go up and they will come back down, as they’re almost always cyclical. But predicting how long the cycle will last is difficult at best.

At the time of this writing, it would appear that mortgage rates are beginning to descend. Fixed mortgage rates are dropping slightly and at this rate, will take some time before any substantial decreases are seen. Even though mortgage rates have fallen slightly, home prices are still up in some areas, while continuing to decline in others.

Mortgage interest rates, generally speaking, don’t fluctuate drastically, but with the amount of a mortgage loan, even a half-percent can make a big difference in what you wind up paying over 20 or 30 years.

The bottom line is no one can say with certainty which direction mortgage rates will go. If you were to ask a dozen financial experts, chances are you’d come away with a dozen different answers, with no guarantees that any of them were correct. If buying a house is in your plans for the near future, your best bet is to shop around and find the best deal you can at the time. If interest rates drop significantly, you always have the option of refinancing.