The good news about mortgage rates? They’ve been at or near historic lows recently, and by all indications they should stay fairly low for the short term. But as anyone who follows these rates knows, they can be very volatile – sometimes changing multiple times in one day. What affects mortgage rates? In May 2011 I interviewed Joe Kelly, founder of ArcLoan.com on Talk Credit Radio. His advice is still timely today.
Here is a transcript from my interview, edited only slightly for readability.
Gerri Detweiler: Time now for our weekly mortgage report with Joe Kelly and are going to talk about mortgage interest rates. Of course every week seems something different, they’re up, they’re down. They change all the time. Joe is going to help explain – and try to keep it short – what affects mortgage rates and why should you care? Welcome back Joe.
Joe Kelly: Thank you Gerri happy Friday. We are going to try and simplify a very complex topic in a couple minutes by giving a few basics. You really touched on interest rates go up and down and the only prediction anybody can really make is they will go up and down. If anybody can predict today better than that, they would be happily retired.
Why should people care is really the subject I want to touch on. If you are a current home owner the mortgage is probably the largest debt that you will ever have and even small changes in the interest rate that you are paying on that mortgage to make a big difference over time. And if someone is looking to buy a home and not owning a home now, the cycles of interest rates do affect that decision for whether they qualify and what their payments will be.
There are some broad simple things that anybody can kind of understand and follow that would be wise for them to take heed of. That is that mortgage rates are affected by many factors. We live in a worldwide economy; overseas, the price of a dollar all those things that are going on in other economies as well as our own affect long-term (the rates 30-year and 15-year mortgages are tied to) and short-term interest rates.
The biggest factor that effects long term interest rates are inflation or predictions of whether they will go up or down. If there is fear that inflation will go up in coming quarters or years, that causes long term rates to rise. Many consumers think the Federal Reserve when they meet and come out and say, “We’re cutting or keeping interest rates low,” they think that affects long term rates. The feds and government have no effect over long-term rates, they affect short term rates.
Gerri: Are many people looking at adjustable mortgage rates right now or do you see most clients wanting to go for a fixed rate?
Joe: It used to be a lot looked at adjustable mortgages. The US is the only country in the world that offers 30 yr fixed mortgages and there is talk that those things might change down the road. We are seeing more people looking at adjustable rate mortgages but longer term ones like 5 years or 7 years. Even a small difference in somebody’s interest rate can make a huge difference. Even a small quarter percent – if they can do for little or no cost they put themselves in a position to pay that loan off two years earlier than they would have if they didn’t take action and refinance.
Gerri: That’s a difference, two years of payments. So it can be worth it. One thing I also don’t think that mortgage shoppers realize is how often and quickly mortgage rates can change.
Read the rest of the interview or listen to/download the podcast at TalkCreditRadio.com.
What Affects Mortgage Rates? by Steve Rhode
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