The Calamity Of Your Mortgage Interest Rate Edging Higher
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Mortgage interest rates trade every day, they go up, they go down,
sometimes they only move sideways but they change. It is the way it is
and it is the way it will be, so understanding how that impacts your
personal mortgage repayment future, will help you digest whatever the
financial markets throw at you.Some perspective from my side of the equation; even though mortgage rates are no longer at the historical bottom they were at just a short while ago, they are still historically low. In fact, as recently as the dawn of the new millennium, mortgage rates were hovering around 8% and sub-5% rates have only been around for less than a decade. Absent any high interest rate frame of reference, a .25% increase might seem titanic to some, when in fact , historically speaking, maybe not so much.
First, some knowledge; a .25% increase in the interest rate for your $300,000, 30-year mortgage will cost you an additional $43.57/month. So if you could have locked in your interest rate at 4.00%, but you were hoping rates would go down and you waited, $43.57/month was the gamble. Calamitous maybe, but that is a function of the beholder’s perspective.
Mortgage consumers who remember high single digit interest rates in the 1990s and even some who can remember double digit interest rates as high as the teens back in the late 1980s, have a working frame of reference to temper the effects of interest rate movements. First time home buyers who have only ever known the historically low interest rate environment that has become our norm, do not.
And while some financially
astute market participants may be able to predict interest rate
movements with well researched forecast models that get it right
sometimes, mortgage consumers use less sophisticated tools for divining
when to lock in an interest rate. The consumer tool most used is hope,
and this strategy too often delivers mixed results. Most borrowers I
work with hesitate to lock in their rate because they are hoping rates
will go down and they want that lower hoped for rate.
Saving $43.57/month when
rates move lower is a welcome victory when it happens, but most
consumers focus only on the rate and not the monthly dollars and sense.
The rate is the subject of the conversation, not the impact on monthly
payments. For many consumers, it is the up or down movement of the
interest rate that will mean success or failure on the mortgage
financing scorecard.
Global economic and political interdependence means that an
unexpected, no-way-it-could-have-been-anticipated event on the other
side of the planet can have a direct impact on how interest rates trade
tomorrow. Sudden troop movements at the border of a country with a hard
to pronounce name, or the possibility of a small country defaulting on
financial obligations due (Greece for instance), can cause the financial
markets to move dramatically and instantaneously. And then later in
that same day, when talk of resolution appears to be diffusing the need
for troops or a bailout seems imminent, the financial markets reverse
and all the while your mortgage rate zigs and zags.I watch interest rates almost obsessively, as a boots-on-the-ground mortgage loan originator; it is an integral part of the job. I watch and absorb economic reports as they are released throughout the month and I see how the credit markets process this information. Sometimes it makes sense, sometimes it does not, and after 25 years of this, I am certain of one thing; interest rates change. Lock in early and get on with the business of your mortgage approval.
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