Mortgage Interest Rate Forecast

Mortgage rates tend to reflect the overall direction of interest rates. They typically go up and down just as other Wall Street securities do. If you are in the market for a mortgage, it is always a good idea to keep an eye on what is happening in the financial markets. Rest assured, those in the market for a mortgage do not need an MBA, detailed analysis or number crunching in order to stay aware of the market. Those who pay attention to market trends and the key market indicators discussed daily on the news will find themselves two steps ahead when it comes to one of the most important factors in securing a mortgage with favorable terms, that factor is timing.

When the economy is very active, money managers tend to fear inflation, so they raise interest rates. Mortgage rates generally go up at the dame time. Except for two spikes, mortgage rates have remained below six percent for about the past two years. Still, it should be noted that sales of new homes fell twelve percent in November 2004. Although this cannot be considered a trend, for it is too early to tell, there is some speculation that the very prospect of rising interest rates could have caused the slowdown in the housing market.

The consensus in financial circles seems to be that interest rates will go up in 2005, we just do not know exactly when this will occur.

If this speculation is true, then a December 2004 upsurge in Adjustable Rate Mortgages (one third of all mortgages during the first week of December), might foretell bad news for the thousands of people who have them. ARMs have been especially attractive for high-risk borrowers.

If the federal government continues to increase interest rates, many homeowners could be priced out of their ARMs, if not out of their homes. While it is no time to panic, those holding ARMs, and those who are considering taking them own, may be well advised to have a “Plan B” ready for whenever interest rates rise.