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When Will Mortgage Rates Rise?

'Historic low' mortgage interest rates hang on

Sept. 3, 2015

By TONI MOMBERGER Redlands Daily Facts - Tribune News Service

If you had said four years ago home buyers would see mortgage rates still below 4 percent in 2016, experts would have dismissed you for crazy.

But here we still are -- almost half a decade spent in what were initially called "historic lows."

Year after year, the same song: They're going to go up any day now.

And of course they have, some.

Over the past year, they've gone down and they've gone up, but they've hung around that 4 percent mark.

On Feb. 3, rates were as low as 3.375 percent for a 30-year fixed rate loan. Wowza.

Even the worst day in recent years wasn't a bad day to initiate a loan. In September 2013 it went up to 4.625.

Today, without having to buy points, a borrower can lock in at 3.875.

"It's fantastic," said Redlands, California, mortgage loan originator Craig Huston. "I'm excited about these numbers, because a couple of months ago I was quoting over 4.

"Two or three months ago it cost 2 percent in fees to get 4. So, just to put a number to it, for a $400,000 loan it would have cost $8,000 to get the same loan as you could get for free today."

It's important to keep in mind these general rate quotes apply to best-case-scenario buyers. They have good credit and are putting 20 percent down on what will be their primary residence. Their debt is less than 45 percent of their income.

But of course, when rates change, they do so for everybody.

"My first year, in 2003, I didn't do a loan under 6," said Huston. "I remember calling my entire database when I could get them a 4.999."

How much does the rate matter, in the grand scheme of buying a house?

Let's look at the effect of 1 percent.

The median price of a home in Redlands right now is $350,000. At $350,000 with a 20 percent down payment and a 4 percent rate, principal and interest will cost $1,336 a month.

At 5 percent it goes to $1,503 -- so $166.24 a month more.

That ends up being $34,770.57 more over the 30-year life of the loan.

That means you have to qualify for $35,000 more to buy that house you picked out before the rate rose; or you could say you qualify for homes valued at $35,000 less because mortgage rates went up 1 percent.

They actually move a little bit hourly, so until the loan is locked, the rate you're quoted is not exact.

"You're going to be in a range because it constantly fluctuates," Huston said.

And world events add unpredictability.

"When we go to sleep at night and we see the market is going up or down, we expect it to continue, but something can happen on the other side of the world and it can throw us out of whack," Huston said.

"In general, rates will continue to stay low when the economy is in a mess. When things are uncertain, people pull money out of the stock market and put them into bonds. When people buy bonds, it makes interest rates go down."

Accordingly, if people pull money out of bonds, it will likely make the rates go up.

Huston says, as everyone seems to, that rates can't stay this low for the long term, and a rise could happen any day. He predicts, though, that we have a little more time to enjoy these lows.

"Everything I read, the economy is not where it needs to be to start taking interest rates and making them go higher," he said.

"When investors say rates are going to be higher, they start increasing rates gradually," he said. "Chaos happens if you take a half a percent spike either way in a mortgage company. It's like you'd rather have three 4.0 earthquakes versus one 7."

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Copyright (c) 2015, Redlands Daily Facts, Redlands, Calif.

Distributed by Tribune News Service.

This story was distributed by TNS - Tribune News Service
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