Capping a steady climb since mid-January, interest rates on 30-year fixed-rate mortgages (FRMs) shed 0.14 percentage points last week to an average of 5.33%, according to the BankingMyWay.com Rate Index. The leveling out of rates likely comes as a relief to consumers delaying their mortgage applications in hopes of seeing a return to January's historically low rates of less than 5.0%.
The change in direction was largely due to a continued decline in the economy, according to Frank Nothaft, vice president and chief economist for Freddie Mac (Stock Quote: FRE).
"Mortgage rates followed bond yields lower this week as recent economic reports suggest the economy is still slowing, which reduces the future threat of inflation," Nothaft said in a press release. Nothaft went on to cite record low consumer sentiment and the Federal Reserve's lowered 2009 economic growth forecasts as additional indicators that the economy is likely to get worse before it gets better.
For those hoping for a second chance at sub-5% interest rates on 30-year FRMs, the news comes as a silver-lining to an otherwise dark week that saw the Dow (^DJI) fall to its lowest level since 1997. Refinancing activity has been see-sawing over the last few weeks as homeowners try to get a handle on where rates are going.
But despite all indications that the economy will continue to struggle in 2009, there's no guarantee that mortgage rates will remain at these historic lows. Concerns over growing government debt have pushed up mortgage rates in the past, and could do so again once money from the recently approved $787 billion federal stimulus package starts hitting the streets. President Obama’s mortgage and foreclosure plan may also impact rates.
If you're planning on staying on the sidelines in the hopes that rates will continue to fall, consider taking a few extra minutes to see what will happen if rates move higher.
Start by entering your ZIP code into BankingMyWay.com's Mortgage channel to compare rate offers from local lenders. Residents of Vermont, for example, can apply for a 30-year FRM at 5.25% from KeyBank (Stock Quote: KEY). Meanwhile, residents of North Dakota can apply for a 30-year FRM at 5.35% from US Bank (Stock quote: USB).
Once you've found the best rates in your area, take a look at BankingMyWay.com's maximum mortgage calculator. Based on your financial situation, such as income and current debt level, the calculator shows how the loan amount you'd qualify for changes depending on the interest rate. If rates go up instead of down, for example, you'll qualify for a smaller loan.
While it's difficult -- if not impossible -- to predict exactly where rates are headed, it's a good idea to know how best to handle higher or lower mortgage rates.