Unless you’ve been living in a cave you should know by now that mortgage rates have been hanging out a historically low levels. The big question: Are mortgage rates on the rise? Unfortunately for everyone, we think the answer is yes.
Let’s talk about why the interest rates are currently low before we move into the future. The housing market has been in a major slump and the government has taken great action to increase home sales and help stimulate the economy. Mortgage rates have always been indirectly connected to the bond market and a blend of a few other key investments. The government has been pouring millions of dollars into the bond market to keep mortgage rates from rising but this can’t go on forever. The homebuyer tax credit will more than likely end in 2010 and the endless pursuit to keep rates low will soon follow. Once the government infusion of money comes to an end, the bond markets will start to tank and mortgage rates will start heading in the other direction.
Here’s the thing, there is no cap on how high mortgage rates can go. The mortgage industry is shaky and undesirable for investors as it is so lenders and mortgage investors would prefer to make a bigger return on their investment with a higher interest rate. If the country heads into an inflation period you can bet that the borrowing rate across the board will trend upward and fast.