Mortgage Rates Are Set To Change - Feb. 2010

It is likely that the Federal Reserve will soon stop buying mortgage-backed securities from banks, and the low-level interest rates for home mortgages that have been protected by the government will likely not be available for much longer.  Government officials promise that if mortgage rates shoot up and become detrimental to the economy, the Federal Reserve will consider resuming the purchase of mortgage loans.

PITI is an acronym for Principal, Interest, Taxes, and Insurance - the four elements of a monthly mortgage payment.  If economics factors do not drastically change, and homebuyers are still able to afford the same mortgage payments, a larger portion of payments will go to the banks because of the higher interest rate.  As a result, buyers will only be able to afford a smaller principle payment, which will make it more difficult to afford the same house in this area.

In a Jan. 12 forecast, the Mortgage Bankers Association projected that rates on 30-year fixed-rate mortgages will rise from an average of 4.9 percent during the final quarter of last year to 6.1 percent in the final quarter of this year, 6.3 percent in the final quarter of 2011, and 6.6 percent during the last three months of 2012.

At the moment, we are watching a booming market with rising prices, and time will show how it will progress long term.

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