Home Buyers Should Refinance Soon as Mortgage Rates Higher in 2010

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Forecast says low mortgage rates may end. Mortgage rate could hit 6.1 percent in 2010. Higher mortgage rate means higher payment, so home buyers should make performance quickly before the predict come into truth.

Low mortgage rates may end soon, according to a new forecast by the Mortgage Bankers Association (MBA).

The trade group of mortgage bankers in Washington, D.C., has forecast that the average interest rate on a 30-year fixed-rate mortgage will increase to 5.7 percent by the end of 2010 and 6.1 percent in late 2011. That’s significantly higher than current mortgage rates, which were 4.79% for a 30-year fixed-rate mortgage the week ending November 27, 2009.  

Forecast predicts higher mortgage rates
Borrowers will face jumps in mortgage rates on the 30-year fixed-rate mortgage almost every quarter for the next two years, if the forecast proves accurate. Specifically, the forecast predicts the average interest rate on a 30-year fixed-rate mortgage will be 5.3 in the first quarter of 2010, 5.5 percent in the second quarter and then 5.6 percent and 5.7 percent in the third and fourth quarters, respectively. Mortgage rates in 2011 were forecast to be 5.8 percent in the first quarter, 6 percent in the second quarter and 6.1 percent in the third and fourth quarters.

Higher mortgage rate means higher payment
A small increase in the mortgage interest rate on a 30-year mortgage may seem insignificant, but in fact, even a slightly higher mortgage rate turns into a higher monthly mortgage payment. And the more the interest rate rises, the higher the payment will be.

For example, the monthly payment on a $350,000 mortgage at an interest rate of 5.1 percent is $1,900. Jump the interest rate to 5.5 percent, and the monthly payment goes up to $1,987, an increase of $87 per month. If the interest rate jumped a full percentage point to 6.1 percent, the payment would go up to $2,121. The payment on the same loan amount at 4.75 percent—a rate that’s available to some borrowers today–would be just $1,826.

Interest rates are still low—for now
Clearly, home buyers and homeowners who want to refinance should act soon if they want to take advantage of today’s low interest rates and avoid the MBA’s forecasted mortgage rate hikes. Home buyers who may want to wait for hoped-for lower home prices should weigh the advantages of a lower home price against the risk of a higher interest rate.