Why You Can't Trust Today's Mortgage Rates to Stay Low

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Shutterstock A problem with waiting for interest rates to 'hit bottom' is that you can only know what that is after rates rise again.
The Mortgage Bankers Association (MBA) reported this week that the average interest rate for 30-year fixed-rate conforming mortgages decreased to 4.20 percent (the lowest since June 2013!) from 4.30 percent. Fifteen-year fixed loan mortgages fell to 3.41 percent, and 5/1 hybrid ARMs dropped to 3.05 percent.

The MBA's chief economist, Mike Fratantoni, said in a press release, "Growing concerns about weak economic growth in Europe caused a flight to quality into US assets last week, leading to sharp drops in interest rates. Mortgage rates for most loan products fell to their lowest level since June 2013. Refinance application volume reached the highest level since June 2014 as a result, with conventional refinance volume at its highest since February 2014."

3 Reasons You Can't Trust Today's Mortgage Rates: Homeowners mulling a mortgage refinance may regret it if they wait for interest rates to "hit bottom," because a bottom becomes apparent after rates begin rising -- and rates tend to increase much faster than they decrease. Interest rates are subject to sudden changes under most circumstances, but here are three particular reasons to suspect that today's rates may suddenly get shifty:

1. Mortgage rates have already defied the odds for a long time. Before 2009, 30-year rates had never dropped below 5 percent, but they've mostly been below 5 percent since. This unusual state of affairs is due primarily to two things: a stubbornly weak economy, and active Federal Reserve intervention. As the following points show, those two things are changing.

2. The economy finally seems on the mend. According to the Bureau of Labor Statistics, job growth has topped 200,000 in seven of the first nine months of 2014.

3. The Fed is already winding down the bond purchases that helped drive mortgage rates lower. The next step: liquidating the bond positions it accumulated during this program, which will really start to put upward pressure on mortgage rates.

These conditions not only imply that interest rates could be headed higher, but with the latter two factors influencing the transition, expect the rate environment to be more variable than it has been in recent months.

[Shop for free competitive mortgage rates]

How to Manage Changing Mortgage Rates: Here are some tips on what to do if mortgage rates suddenly become a moving target before you have a firm rate commitment.

1. Shop around. When mortgage rates start to move, lenders don't all change to the same degree and at the same time. The more changeable the rate environment, the more potential value there is in shopping -- and it's easy to do so online.

2. Lock in a deal when you can afford it. Don't play chicken with mortgage rates, holding out in the hopes they will go back down. A move in the wrong direction can quickly turn a deal from a little pricey to out of your range.

3. Get pre-approved now. Don't wait until you've decided to lock in before applying for a mortgage refinance. Get pre-approved so you only have to lock in for a short time. You'll close faster, avoid glitches and save money, because rates with 15-day locks are lower than rates with 30-day locks.

[See today's mortgage rates now.]

The great thing about fixed-rate mortgages is that they let you grab today's low interest rate for the 15- or 30-year duration of your loan. However, you may have to sweat a little bit first, as interest rates jump around while you are house shopping or going through the refinance process.
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