As most of you are aware of the tremendous dip and record lows in the mortgage rates, many are slow to the news that the mortgage rates have began their turn-around. First, let's do a little background check on the mortgage rates just to make sure everyone reading this is of complete understanding when I begin to explain the current mortgage rate situation we are in.
Just to be thorough let's start with square one: what is a mortgage rate? A mortgage rate is literally the rate of interest that is charged on a mortgage. This "rate" is most commonly generated by the mortgage lender after fully evaluating the situation at hand and can either be fixed (which means the rate you agree upon will be locked-in for the term of the mortgage) or variable (which means the rate will fluctuate in accordance with a benchmark interest rate). Also, when I speak about the mortgage rates and reference any percentages I will be talking about the national average of the 30-year fixed mortgage rate (the 30-year fixed mortgage is commonly used as a standard because it is the most popular choice for home buyers).
The national average dipped all the way down to the low 3.3% range last year which achieved record lows, but it is now beginning its move upward. According to Freddie Mac figures, last week the rate hit a six month high of 3.63%. Mortgages rates are expected to continue rising throughout this year which would make owning a home more expensive. I know the first reaction to this news is probably not a positive one, but after I go over a few things I believe I can turn those feelings positive. Let's review the rates in five year increments beginning with 1980 in order to put this "rate" into perspective:
- 1980 -- 13.74%
- 1985 -- 12.43%
- 1990 -- 10.13%
- 1995 -- 7.93%
- 2000 -- 8.05%
- 2005 -- 5.87%
- 2010 -- 4.69%
Look at the recent mortgage rate jump up to 3.63% and then compare that to the numbers you see above; although the rates are slightly rising they are still very low.
There are some other aspects to consider as well. Some housing analysts are saying that the rising mortgage rates could actually help aid the housing recovery. A lot of the home buyers who have been sitting on the fence may see the rising mortgage rates as a final sign that the housing recovery is fully on its way; and a sign to buy now because, while borrowing is still on the inexpensive side, it is time to lock in a rate now before the rates move any higher. "Rising interest rates alone are not enough to slow down the housing recovery," Barney Hartman-Glaser, a real estate finance professor at Duke University, told Fortune. “My sense is that underwriting standards are getting easier to satisfy, and so we would expect rates to rise as slightly more risky borrowers are brought into the fold."
Furthermore, Andrea Heuson, a finance professor at the University of Miami, stated that the increase in mortgage rates interestingly enough coincides with increased demand for loans across United States businesses. Commercial and industrial loans were up 12.5% in January when compared to the previous year, reaching $1.5 trillion. Heuson told Fortune that, "The recent increase ... bodes well for the future of the U.S. economy." The reasoning for that statement is that when businesses borrow more, it usually boosts the economy in several ways which includes job growth,increasing consumer confidence, as well as increasing home sales.
