Interest Rates – Up or Down

 In First-Time Home Buyers, Refinancing your Mortgage

Interest rates!  Will they go up?  Will they go down? Should I buy a house or refinance my mortgage now, or should I wait?

Here are our thoughts on interest rates and whether you should buy now, refinance now, or wait.

Buying a house in Colorado is no easy task these days.  Too many people want to buy a house, and too few people are selling them.  That throws off the supply and demand equilibrium, and prices go up.  

There are those who believe housing prices can’t continue to go up forever, but when it comes to housing, that’s not necessarily true.  As long as more people want to buy a house than there are people willing to sell, prices will continue to go up.  

Many so-called experts say that rising interest rates will cause housing prices to drop, but that’s true only if you ignore supply and demand.

There are many, many people in this country (and in other counties) who will still want to buy a house in Colorado, regardless of the price.  An increased mortgage payment might be a big enough reason for some people to stop trying to buy a house, but for millions of others, a mortgage payment of a few more dollars each month – or even a few thousand more dollars – is not going to deter them from buying a house.

The housing bubble that existed in 2008 occurred because crooked lenders sold horrible loans to too many people.  Income wasn’t verified, assets weren’t verified, and just about anyone who wanted to buy a house could buy one with no money down.  Builders kept building houses because it seemed as if the demand would never decrease, but eventually, everyone who wanted to buy a house bought one.  That caused the demand to go down, but the builders kept building houses.  Builders couldn’t sell the houses they built, and the only way to get rid of them was to lower the prices.  Too many houses and not enough buyers caused housing prices to crash.

The exact opposite situation exists now.  The mortgage rules changed dramatically after the housing crash, and now you have to prove you can afford to pay your mortgage back before you can get a loan.  Believe it or not, that was not the case before 2008.

Our prediction.

Regardless of how high interest rates go, there won’t be another housing crash unless predatory loans are allowed once again.  That could happen, but only if Congress allows it, and banks are making so much more money now than they did when predatory loans were allowed, there is little lobbying effort by the lenders to get Congress to change the laws.  So, if you can afford to buy a house, buy one.

Regarding refinancing an existing mortgage, if you have a low rate and want to get a lower rate, you are probably out of luck.  Although the Federal Reserve does not control mortgage interest rates, they do control short-term interest rates (credit cards, car loans, personal loans, etc.), and the Fed is almost certain to raise short-term rates very shortly to control inflation.

Mortgage rates are determined by the demand for mortgage bonds.  When there is a large demand for the bonds, the price of the bonds goes up and the interest rates for those bonds goes down.  When there isn’t a large demand for mortgage bonds, the price of the bonds goes down because they are sold at auction, and the interest rates go up.  

If an investor can get a bigger return on their investment by purchasing something other than a mortgage bond (which they will be able to do when short-term rates go up), they will not buy mortgage bonds and rates for the mortgages that back those bonds will go up.  Again, supply and demand.  

Our prediction is that mortgage interest rates will continue to go up.  There will undoubtedly be fluctuations in the rates, but the long-term trend is going to be higher mortgage rates.

So, should you refinance now?  Probably not if all you want to do is get a lower interest rate.  You probably won’t be able to get a lower rate if you got your current mortgage in the past few years.  However, if you need some money to pay off high-interest credit card debt, for home improvements, for college, for the down payment on another house, or for anything else, it might be a very good time to refinance.  We have clients who are lowering their total monthly bills by many hundreds of dollars each month by refinancing.  Their new mortgage rate might be a bit higher than their old rate, but they have a lot more money in their pocket each month, or they use the money for some other investment.

We can figure out if you can afford to buy a house, and also whether it makes sense to refinance an existing mortgage.  If the answer is no, we will certainly tell you.  Our business is built on repeat business from past clients, so it is in everyone’s best interest to tell you the truth.  

Contact us today to get the answers you need to your mortgage questions.  You will be glad you did.


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