What to Do? Mortgage Rates Below 4% May Soon Be History

What to Do? Mortgage Rates Below 4% May Soon Be HistoryIt has been an historic ride for those able to refinance or purchase a home — the fixed rate on the 30-year mortgage has been under 4 percent for 14 months.
Unfortunately, those days are likely numbered, with economic indicators and pending Federal Reserve actions pointing to a faster pace to 4 percent than had been earlier projected.
Freddie Mac still expects that average fixed rates will touch the 4 percent mark  during the second half of 2013 — which just got underway.
This past week the average 30-year fixed rate was at 3.81 percent. The record low was hit last November at 3.31 percent.
Make no mistake, however, rates are still historically low. Remember when the 30-year rate peaked at 18.63 percent in Oct. 9, 1981?
However, the trajectory has shifted sooner than later for 2013, with a housing recovery that has moved into a higher gear, boosted by rising home prices, higher demand for new, single-family residences and the looming pullback of bond purchases by the central bank.
“I think the low rates that we had seen over the last year — I think that will be history,” Frank Nothaft, vice president and chief economist with Freddie Mac, told ABC News.
Those homeowners who are able to refinance should closely examine their options. A quarter of U.S. homeowners are “underwater,” owing more on mortgages than the worth of their homes, according to Zillow’s latest update for the first quarter of 2013. That means they have a balancing act — waiting on home prices/values to continue to rise, but keeping a wary eye on rising interest rates. Their window of opportunity may be closing.
Another 18.2 percent of homeowners with mortgages, while not technically underwater, likely do not have enough equity to afford to move.
If you can manage a decrease of one percentage point from your current mortgage rate, then refinancing is likely a good idea — but Erin Lantz, director of Zillow Mortgage Marketplace, told ABC that the rules have changed.
“In today’s low rate environment, what you want to think about are monthly potential savings,” Lantz said, including the costs to refinance and how long are you planning to stay in the home.
Zillow has a helpful refinancing calculator on its website.
Most official and unofficial indicators point to a 30-year fixed rate at, just below, or just above 4 percent by the end of summer.
Minutes of the Fed’s April 30-May 1 meeting released last month show “a number” of members expressed a willingness to scale back the $85 billion a month in Treasury and mortgage bonds the Fed has been purchasing, possibly as soon as June, if the economy continues to improve.
The Fed’s next meeting on June 18-19 will be one of the most closely watched in recent memory.
Rates in recent days have risen “in response to stronger economic data and an increasing chance that the Fed may soon begin to taper their asset purchases,” said Mike Fratantoni, Vice President of Research and Economics for the Mortgage Bankers Association.
Some members of a Federal Reserve banking advisory committee have said that the Fed’s low interest-rate policies could be creating an “unsustainable bubble” in stock and bond markets.
The Fed’s policies has provided support for a slow economic recovery. But some advisory members are worried that the policies may also result in higher inflation or market instability.
The advisory group is made up of private bankers from each of the Fed’s 12 banking districts.

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