What do Mortgage Rate Predictions for 2013 Mean for You?
Mortgage Rate Predictions for 2013 Suggest Climbing But Still Low Rates. Learn What This Trend Means for You as a Borrower and What It Suggests about the Economy.
Mortgage Rate Predictions 2013
With mortgage rate predictions for 2013 continuing to suggest increases that will keep rates at or near four percent, well above their lows from the end of 2012 and early in the year, you might be wondering what the impacts of this increase are. Rising mortgage rates have a number of effects, some obvious and some less so, whether you’re a potential home buyer, a home owner, or just someone interested in markets and the economy.
The most obvious implications of generally rising mortgage rates are for potential home buyers who want to take out a home loan and are concerned about what mortgage interest rates they can get. They face two results. First, the rates they can get today are lower than they could a week ago, on average. This doesn’t mean that it’s a bad time to get a home loan, because even at four percent, mortgage rates are near their lowest in the past few years, and well below their average if you look at the past twenty years. The point is that with the uncertainty in the market and the decent chance that rates will continue to trend upwards for the next year or so, rising rates actually mean you should get your finances in order and try to lock in your loan rate now if you need a home mortgage.
The second impact that potential borrowers face is artificially adjusted loan rates, because banks see the rising trend and don’t want to make loans at fixed, lower rates that lock them out of those likely profits. This makes it a less desirable time to take out a fixed-rate mortgage than it was in early 2013, for example, because when there was no end to record-low-level rates in site, banks didn’t have quite the same incentive to adjust up. So you might face a higher spread between benchmark rates and what banks will offer on these kinds of loans, because of the signs that rates and the economy are recovering.
This brings up a final point for buyers and their specific access to financing. When rates look like they are poised to rise in the medium-term, your decision between fixed- and adjustable-rate mortgages changes. Obviously, if you can get a good deal on a FRM, you should take advantage of the chance to lock that down because when rates go up, you can get invest the equity from your home at the higher rate. However, if you are willing to gamble on the near future and know you’re going to move, you can get even better benefits from ARMs because you can negotiate with banks to give you a lower spread. They may expect to make more in the future because they know rates are going up. But if you move and sell as that’s happening, you will have enjoyed especially low rates for the near term and escaped before paying those prices.
We can also make a few obvious dedications about the economy and the direction that private and government banks. They think the economy will continue to recover. This is especially obvious in the fact that the Federal Reserve Bank announced it would be scaling back several policies intended to keep interest rates down. This hasn’t yet happened, and the announcement did spur some of the rise in rates, but it suggests that the Fed thinks the economy has built up enough of its own momentum that keeping borrowing cheap is no longer the best strategy. A recovering economy is great news for home-owners and for people looking for work in general. But it is less desirable for those of you getting ready to shop for a home and take out a mortgage. Not only will mortgage payments be higher, the home will cost more.
This brings up another trend related to rising mortgage interest rates: trends in the housing market. You can look at housing market prices and see that they are recovering along with new home construction numbers, probably in part because of the widespread access to affordable financing that existed for nearly a year. But the connection is more complex than the simplification that when interest rates are low, housing prices should climb and when rates go up, prices should stop climbing. You actually have to look at the change in mortgage rates relative to the inflation in home prices. If interest rates begin to climb faster than housing prices, then it ceases to be profitable for individuals to take out loans to buy homes that they can turn into profits. But as long as prices are rising faster than interest rates, making those homes profitable investments, you won’t see a direct correlation between mortgages rates and home prices. Of course, that reality isn’t too likely, because when interest rates are going up that quick, it’s usually a sign of general economic inflation that will probably be pushing up prices in general.
In terms of the impact of mortgage rate predictions for 2013, this just means that you can’t immediately expect that home prices might fall thanks so this increase in rates and thus relative increase in the price of financing. However, other more basic forces in the housing market are present to maintain and push prices up, so as a homeowner, you can rest easy that your investment’s value is rising. So pay attention to how these predictions for the future or mortgage rates impact not just your chances to take out a loan for a home but also how that equity investment will perform.