Financial analysts are not sure, because they have no crystal ball. But they’re urging mortgage shoppers to act soon, because all the indications are that yes, mortgage rates could rise – and soon.
Homeowners with adjustable rate mortgages should be taking action now, as none of the analysts predicts a further drop. Once rates go up, the adjustable rate will rise and the homeowner will be left with no pleasing options.
Why do they believe interest rates will rise?
Because contrary to popular belief, mortgage rates are not tied to the Federal Reserve. They are instead tied to the anticipated rate of inflation. Bob Walters, chief economist at Quicken Loans in Livonia, Michigan, was quoted on bankrate.com as saying: “Mortgage rates are always going to be some percentage above what the expected inflation rate of the next 10 years or seven years is going to be.”
Nearly everyone is expecting runaway inflation as a result of the recent government actions, thus we should probably be expecting high mortgage interest rates as well.
Other reasons for taking action now are also tied to recent government actions:
• The $8,000 first time buyer tax credit is set to expire on November 30, and while there has been talk of an extension, no formal word has come out.
• Fannie Mae and Freddie Mac programs designed to stimulate sales in high cost housing markets are scheduled to end at year’s end.
• The government’s Home Affordable Refinance plan is scheduled to end next June.
• In October the Federal Reserve will begin to wind down its campaign of buying $300 billion in long-term Treasury securities.
• The Fed’s effort to buy $1.25 trillion in mortgage-backed securities is scheduled to expire at the end of the year.
All of these events could combine to drive interest rates higher, and it could happen suddenly.
First-time homebuyers who have been gathering funds for a down payment in hopes of getting in on time may not be aware that they can use that $8,000 for their down payment under some circumstances. To take advantage of this program, you must obtain a loan that is insured by the Federal Housing Administration – in other words, apply for a FHA Loan rather than a conventional loan.
Interested homebuyers can get more information at www.hud.gov.
Meanwhile, between the pending expiration date and the threat of higher interest rates, now is the time for first time buyers to take action. Right now, loans are taking from 4 to 6 weeks to close. As we near the deadline and mortgage loan processors are deluged with loans, the process could easily take 8 weeks.
That means first-time-homebuyers should have an accepted purchase agreement no later than October 1. Since negotiation takes time – especially when purchasing a short sale or a bank owned home – serious buyers should go shopping this very day.
Author:Marte Cliff
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