2009 Saw Historic Mortgage Interest Rate Lows
2009 was a historic year for low San Mateo mortgage interest rates. We had 3 periods throughout the year where rates dipped into the 4% range: January, March/April and November/December. With the 2010 right around the corner, new opportunities and increasing mortgage interest rates are ahead.
Why Were Mortgage Interest Rates Low in 2009?
At the beginning of 2009 the Fed agreed to purchase up to $1.25 trillion of mortgage backed securities to help stimulate the economy. Because of this commitment, interest rates dropped to these historic lows. It’s the classic case of supply and demand.
Fed’s Commitment to Purchase Mortgage Backed Securities Ends March 2010
The commitment from the Fed to purchase mortgage backed securities will come to an end this March. In anticipation, the Fed has slowed their purchasing of mortgage backed securities only buying $15 billion last week compared to the $20-$25 billion per week the Fed was purchasing just a few months ago.
Why Will San Mateo Mortgage Interest Rates Rise in 2010?
When a loan is made and closes escrow, it takes about 4 months for it to be packaged and sold on the secondary market. So, what was happening 4 months ago? Four months ago there was an increase of loan origination at the end of summer and into the fall because of low mortgage interest rates and the anticipation of the expiration of the tax credit. These mortgage backed securities originated 4 months ago are just starting to hit the market at the same time the Fed is slowing their purchasing of mortgage backed securities. The result is that in the last couple of weeks we’ve seen a slight rise in interest rates into the low to mid 5% range.
What’s going to happen when the Fed stops purchasing all together? Well the supply is still going to be there and the demand won’t be. This can only mean a rise in mortgage interest rates.
How High will Mortgage Interest Rates Climb?
Nobody has a crystal ball. To say where rates will be in 3 months, 6 months or a year from now will is just a guess. However, a good indication of where rates may be in 3 months is to go back to where rates were before the Fed started purchasing Mortgage Backed Securities, which was around 6.5%. How high can they go in 2010? If you listen to the experts, don’t be shocked if rates at the end of 2010 are at 7%, 8% or even higher.
How Can You Avoid Climbing Mortgage Interest Rates?
If you are looking to purchase a home or refinance your mortgage, the next month will be your prime opportunity. There will be a continuous supply of mortgage backed securities hitting the market as the Fed scales back their purchases of mortgage backed securities. In my opinion, rates will continue to move higher and higher over the next several months.
Once the Feds purchasing commitment is over, there is no doubt mortgage interest rates will be significantly higher. The only question will be, how high? Now is the time to purchase a San Mateo home or to lower your monthly mortgage payments by refinancing while rates are still at historic lows, possibly for the last time.
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Chris Williamson is a Mortgage Advisor with Mortgage California specializing in San Mateo Mortgage.
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