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Interest rates are low but for how much longer?

Interest rates are low but for how much longer?

We continue to see historic lows for 30yr and 15yr fixed mortgage rates. For those of you who have been fortunate enough to refinance or if you purchased a home recently and financed it, then consider yourself one of the lucky ones by being able to take advantage of these unprecedented low interest rates. The 10yr Treasury Note has always been one of the more useful instruments in determining long term fixed mortgage rates. Mortgage rates seem to mirror the same movements as the 10yr Treasury Note in the market. The yields on the 10yr Treasury Note are determined by investor concentration. For example, if stocks seem to be more stable and investors shift their money from bonds into stocks then the yields on the 10yr Treasury Note will rise therefore causing mortgage rates to most likely rise as well. The reverse is also true if investors think stocks are more volatile and they shift their money into safer perceived bonds then this will decrease the yields on the 10yr Treasury Note which in turn will lower mortgage rates. The latter scenario is what we have been experiencing recently.

Mortgage rates are usually about 1.5% – 2% higher than the 10yr Treasury Note depending on the term (1.5% higher for a 15yr and 2% for a 30yr mortgage). Over the past 50 years, the 10yr Treasury Note has been as high as 15% dating back to the early 1980s when we saw mortgage rates around 17% and it has been as low as 2% back in 2010 and again at the end of last week. This means that rates once again are at an all time low with the 30yr hovering in the low 4% range and the 15 yr around 3.5%. With rates being the lowest they have been in 50 years its no wonder why people ask “how much longer will this last? It’s a great question but a tough one to answer. There are a lot factors that will continue to determine the future for mortgage rates such as the job market, inflation, the government, etc.. The government definitely plays a big role in this determination since they control the Federal Funds Rate which they have kept extremely low at a rate of 0 – .25% over the past 3 years.

The Federal Funds Rate is another tool used in determining mortgage interest rates since this is the rate that banks are charged to borrow money from the Federal Reserve. The Federal Reserve Chairman, Ben Bernanke, has stated that the Federal Funds Rate would be kept low until the year 2013. Based on Mr Bernanke’s statement and a struggling economy, I believe we will continue to see interest rates stay at their historic lows through the rest of 2011 but I do believe it’s inevitable that in the near future, rates will begin to slowly rise because they really have only one way to move from here, which is up. When interest rates rise it will make every home purchase that is financed effectively cost more. Our current low rates make home purchasing more attractive. This can benefit both the buyer, who is looking for a low interest rate, and the seller who needs a buyer who can afford the property. If you or someone you know is getting ready to purchase or refinance their home and has questions in regards to the mortgage process, please feel free to call Dan Longman, President of Priority Lending Corp, at 954-438-3776 ext.11 or email me at prioritydan@bellsouth.net. Visit us online at www.prioritylendingcorp.com

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