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2010 Mortgage Interest Rate Predictions-Will Rates Go Up Or Down?

04/09/2010

Will interest rates go up? Or will they go down? That's the question everyone wants answered. Whether interest rates move up or down - even by a percentage point or two - will have a huge impact on other market rates. It might even mean the difference between a homeowner holding onto a house and losing it to bank foreclosure.

The problem with making an interest rate prediction is that none of us has a crystal ball that lets us see into the future. But we can look at the past and at economic trends to help determine movement. That's what economists do and you can do it too, if you know what to look for.
Most mortgage companies follow their own formulae for setting mortgage interest rates. But even they pay attention to certain readily available factors.

The factors that matter

Since mortgage rates closely follow the rates set by the U.S. Treasury, an important factor to consider is the interest rate on 10-year Treasury notes. If mortgage companies set their rates lower than those set by knowledgeable government officials, they wouldn't make a profit. That's why they won't do this.
Another closely watched factor when determining interest rates is the inflation rate. Mortgage and inflation rates are closely related so when one goes up, the other likely will too. Again, the quest for profitability is the driving force here. Regardless of the state of the economy, investors always want the best rate of return.

Historical trends can also be useful in making predictions about future interest rate movement since history tends to repeat. But it's important to remember that a lot of what's going on today hasn't happened before, so there's nothing in the past to compare to.
Something else worth monitoring is what the mortgage giants are doing. To remain competitive with one another, their rates tend to move in the same direction. When one announces a cut in interest rates, others are sure to follow. Even though each company's rates may differ slightly, their movement up and down tends to be in synch.

The bottom line is

A prediction is simply a guess. If you're trying to predict interest rate movement in order to find the lowest mortgage rate, don't be surprised if you're slightly off. As long as you watch the same factors government officials and mortgage industry giants watch, yours should be fairly accurate. Good luck!

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