Mortgage Rate Predictions

Mortgage rates have been holding steady even with the Federal Reserve’s conclusion of its buy up of mortgage-backed securities. Rates for 30-year fixed-rate mortgages have been averaging around 5.00 through the first four months of 2010 according to a survey recently released by Freddie Mac. These rates have matched the annual average rates during 2009. 15-year fixed-rate mortgages have been averaging 4.39 percent with an average 0.7 point, down from 4.48 percent a year ago April. The Treasury 5-year ARM has averaged 4.0 percent with an average 0.6 point, which is down 4.8 percent from April 2009.

The 1-year Treasury ARM averaged 4.25 percent with an average 0.5 point, and was down from 4.77 percent from April 2009. As of the week ending April 23, 2010, the Mortgage Bankers Association (MBA) reported that the demand for purchase loans was up 7.4% from the previous week to meet the deadline of April 30th for the homebuyer tax credits. The demand for refinancing was down 8.8 percent that was the lowest since August 2009 according to the MBA.

It is expected that mortgage rates will rise this year as a result of the Federal Reserve discontinuing its purchase of mortgage-backed securities program guaranteed by Fannie Mae and Freddie Mac, despite their policy to continue to keep short term rates at current historically low rates. MBA economists are forecasting that the 30-year fixed rate mortgage will continue to rise for the next 10 quarters to an average of 5.8 percent by the end of 2010, 6.3 percent by the end of 2010, and 6.6 percent by the last quarter of 2012.

However, right now with the fear of the European financial crisis, it is keeping rates low for U.S. homeowners. As of June 1, 2010, national 30-year fixed rates fell 2 basis points from 4.70% to 4.68% according to Zillow. Compared to the previous week, the national 30-year mortgage rate is up 3 basis points from 4.65%. With the housing affordability being at record highs and interest rates at record lows, plus consumer confidence and incomes improving could help immediate home sales in June.

Borrowers are in a very good position to take advantage of these conditions right now. It appears that borrowers are doing just that, as applications to refinance were at their highest levels in seven months last week according to the Mortgage Bankers Association. Borrowers’ fears are that the turmoil in the stock market and the European financial crisis could close this window of opportunity quickly with investor’s confidence and the shifting of money out of U. S. Treasury bonds and back in stocks driving rates higher. This explains the rush to refinance over the past week. Borrowers with less than perfect credit do face more challenges, as it is much harder for them to qualify for a loan because lenders continue to tighten their guidelines and require larger down payments in some instances. Borrowers with good credit scores are finding the rates they want and are locking them in. Expect some ups and downs in interest rates over the summer until this European financial crisis is resolved.