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How to Know When Mortgage Rates May Increase

It's difficult to predict where mortgage rates will go in the near future.  Current mortgage rates are shaped by a number of complex market changes that have taken place days, weeks, and even years in the past.  At present, though, there are a few ways you can predict with some degree of accuracy whether mortgage rates are likely to increase in the near future.

Are Treasury bond yields increasing?  Mortgage rates track Treasury bond yields pretty closely.  If Treasury yields are increasing, mortgage rates are likely to increase as well.  This isn't always the case, but it occurs consistently enough that the general rule of thumb is practical.  Watch Treasury yields.  Watch how they are moving.  Mortgage rates will likely respond similarly.

This raises the difficult issue of how to predict where Treasury bond yields will go.  There are ways to do this, but these methods are beyond the scope of this article.  For now, just keep an eye on Treasury bond yields and recognize that any trend you notice unfolding before you will likely be repeated by mortgage rates.

Are mortgage rates lower than they've been in recent years?  If current mortgage rates are significantly lower than they've been in recent years, there is a very good chance that they will increase again to match their former levels.  History bears this out.  As a whole, mortgage rates have remained fairly steady for the past few decades, with some brief dizzying heights and other brief unbelievable lows.  Our nation is currently caught in a low period, but if history is borne out, this won't last long.  The economy, as it begins to right itself, will bring mortgage rates back up to average levels again.

Though this method won't allow you to determine necessarily whether or not mortgage rates will increase between now and your planned home purchase next month, it will give you an idea as to whether or not you should put your refinance on hold for a year.  The answer?  Don't.  Low mortgage rates rarely stay low for long.

Is inflation increasing?  As inflation increases, mortgage rates move upward to account for the diminishing value of the dollar.  This means that when mortgage rates are low and inflation kicks on and begins running, you can be almost completely positive that mortgage rates will follow suit in the months to come.

Mortgage rates are priced by lenders to provide a premium return over and above the rate of inflation.  Mortgage rates, therefore, must always outpace inflation, or the bank won't be able to continue lending.  If inflation has begun trending upward, you can be certain that mortgage rates will move upward as well.
 

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