Lowest Mortgage Rates: Is It Just a Waiting Game?
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Posted On :
Jan-28-2010
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Article Word Count :
817
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When rates dipped to record lows in May 2009, many homeowners rushed to refinance, locking in rates that were at their lowest levels in decades. And as rates began to inch slowly upward later in the year, potential borrowers began to wonder if they should wait to see if rates once again crept downward.
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With mortgage rates near historic levels, many homeowners and home buyers are considering refinancing or home purchase to lock in low interest rates. But other potential borrowers are playing the waiting game, watching the market to see if rates go even lower. But with the economy in upheaval, is waiting the best option, or should borrowers take the plunge and lock in rates now?
Most financial and lending experts say the time for indecision is over, and borrowers interested in refinancing or buying a home should lock in rates today.
When rates dipped to record lows in May 2009, many homeowners rushed to refinance, locking in rates that were at their lowest levels in decades. And as rates began to inch slowly upward later in the year, potential borrowers began to wonder if they should wait to see if rates once again crept downward.
But according to today’s financial indicators, the nation’s economy may be in the early stages of recovery, meaning the time for low rates may be near an end. Gambling on lower rates is risky at best, and could be a strategy that ends up costing borrowers a significant amount of money in the long run.
Whether or not the time is right for you to refinance or take out a purchase mortgage is a personal decision. But understanding the mechanisms that drive interest rates down can help you, as a consumer, develop an awareness of whether or not the time is right to lock in your own interest rates.
The Role of the Federal Reserve
The interest rates associated with both 15- and 30-year mortgages are tied to the yields on U.S. Treasury Notes. Because these notes are auctioned on the open market, demand can vary, and usually correlates with the global economy. When demand for U.S. Treasury Notes is high, the yield drops; likewise, when demand is low, the yield rises.
The Federal Reserve Bank determines certain interest rates, and can raise or lower these rates in order to curb recession or stem inflation. Generally speaking, when signs indicate a recession may be imminent, the Federal Reserve may respond by lowering interest rates in order to encourage spending and boost consumer confidence. Likewise when inflation looms, the Federal Reserve, or Fed as it is often called, can raise rates.
During the recent economic and housing crisis, the Federal Reserve began a course of slowly lowering interest rates to spur economic growth, and to encourage potential homeowners to shore up the flagging housing industry.
Most leading economists, including the chairman of the Federal Reserve, believe one of the primary roles of the Fed is to instill and maintain consumer confidence in the economy, and in the Federal Reserve’s ability to stem inflation. And, most economists agree that the Federal Reserve I unlikely to drop interest rates again in the near future; rather, most economists believe interest rates will slowly begin to rise as consumer spending increases during the nation’s economic recovery.
Higher interest rates aren’t all bad; in fact, as interest rates climb, the cost of most consumer goods remains stable, or may even decrease. However, the cost of owning a home can increase dramatically as mortgage rates mount.
For most homeowners and potential borrowers, locking in a low interest rate now can yield thousands of dollars in savings over the term of the mortgage. Even a fraction of a percentage point can mean substantial savings when spread over the life of a 15- or 30-year mortgage. Hesitating to lock in a low rate today can mean the loss of thousands of dollars which cannot be recovered. Considering most mortgages are timed to be paid off by the time the homeowner retires, neglecting to lock in today’s low rates can mean a much smaller nest egg when it comes time for your own retirement.
With the economy showing initial early signs of revival, lending experts and others in the banking industry agree that rates are not likely to drop lower. Playing a waiting game and delaying a mortgage or refinance could result in higher interest rates, as well as higher costs over the life of the loan.
For consumers still uncertain about whether or not today’s low interest rates can benefit them and their bottom lines, speaking with a financial adviser or a mortgage lender can go a long way toward developing an understanding of the risks inherent in waiting to refinance or obtain a purchase mortgage.
Locking in a low rate now, when mortgage rates are near historic lows, is a sound financial move that can have a long-term positive effect on your budget over the life of your loan. Waiting to see if interest rates drop again is a gamble, and one that can have a long-lasting and expensive outcome for you and your household.
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Article Source :
http://www.articleseen.com/Article_Lowest Mortgage Rates: Is It Just a Waiting Game?_9644.aspx
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Author Resource :
Karen Zabel is a freelance writer who offers tips about how to find the lowest mortgage rates.
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Keywords :
: Lowest Mortgage Rates, Real Estate, Mortgage Quote, Adjustable Rate Mortgage, Credit, Line of Credit, Home Equity, Mortgage,
Category :
Finance
:
Mortgage
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