While you may have become used to seeing mortgage interest rates at or below 4 percent, the age of historically-low rates may be coming to an end.
In fact, the Mortgage Bankers Association (MBA), the national association representing the real estate finance industry, predicts 30-year mortgage rates to rise to 4.4 percent by the end of 2013.
So, how solid are the MBA's rate predictions? We asked our panel of mortgage experts for their opinion on where mortgage rates are headed, and what it means for homeowners and potential home buyers. Keep reading to see what they had to say...
Higher-Rate Predictions in 2013 are Tied to the Government
So just why does the MBA expect mortgage rates to increase in 2013? As our expert panel explains, it's all about the economy.
"Most economists, along with the MBA, are predicting higher rates into the later part of 2013," says Amy Tierce, regional vice president at Fairway Independent Mortgage Corporation in Needham, MA. Tierce believes these predictions come from improved economic conditions, including the housing market.
Joe Caltabiano, senior vice president of mortgage lending at Guaranteed Rate mortgages in Chicago, agrees.
"Historically, the mortgage rates shift with the economy," says Caltabiano. "Because of an influx of improving economic data - more jobs created, lower unemployment, and a housing market showing signs of recovery - we expect to see rates increase."
Additionally, experts expect changes to the government's involvement in a program that has been helping keep rates low - The Agency Mortgage-Backed Securities Purchase Program. The program was developed by the Federal Reserve, the United States' central bank, to respond to the 2008 financial crisis.
In September 2012, the Federal Reserve announced that it would buy $40 billion of agency mortgage-backed securities each month until the economy started to show signs of improvement, according to the Mortgage Bankers Association. This has helped keep interest rates low over the past few years. But, as our experts explain, the improving economic conditions mean the Fed's involvement will decrease - driving rates up.
"A large factor in the MBA predicting higher interest rates is that the Federal Reserve will eventually stop purchasing mortgage-backed securities," says Irene Moustakas, a California mortgage broker with Granite Financial. "Considering that interest rates recently increased when the Fed merely suggested that it would stop its program at some point in the coming months, the actual implementation of the program cancellation will definitely result in increased rates on a longer-term scale," she says.
Effects of Rate Increases on Home Buying or Refinancing
So how will this phenomenon affect home buyers and homeowners? Our experts expect that a rate increase will prompt people thinking about buying or refinancing to act now instead of waiting.
"If a homeowner wants to refinance, do it now," advises Tierce. "Homebuyers considering a purchase this year should get with a lender today and get thoroughly pre-approved."
According to Moustakas, the danger of waiting to make your decision is that depending on your income, a higher rate may affect your ability to qualify for a mortgage.
"A higher interest rate can vastly affect your monthly payment, thus reducing your purchase power as a home buyer, and your monthly payment savings if you're seeking a refinance at a reduced rate," she says.
For example, "The monthly principal and interest payment for a $400,000 loan amount at 3.5 percent is $1,796.18," explains Moustakas. However, if you decide to wait until the end of the year - and the MBA's rate predictions are true - the "same loan amount at 4.4 percent will be $2,003.04 - over $200 [per] month that you are paying just in interest."
Our Experts' Rate Predictions
Overall, our mortgage panel agrees with the MBA's prediction that mortgage rates will rise by the end of 2013.
Caltabiano: "It's pretty much impossible to predict where rates will go in the long term, but in the short term, assuming the economy continues to improve, rates will likely increase."
Tierce: Rates could fluctuate depending on consumer behavior. "If rates go up, we may see buyers backing out of the market again and the Fed forced to bring rates back down, Tierce explains. "Therefore, we could see rates rise only to be pushed back down again by market forces."
Moustakas: The MBA's prediction of a rate around 4.4 percent for 30 year mortgages at the end of 2013 is spot on. "I am no economist, but the longer-term trend does seem to show that 30-year fixed interest rates will head towards the low to mid-4s," she says. "At this point, it feels like we have been on such a long ride of low rates that they are bound to increase. The good news is that, in the scheme of it all, [a low to mid-4 interest rate] is still a pretty amazing interest rate range."