Whether you’re a prospective first-time homeowner, or simply looking for another property to buy, you need to be aware of today’s mortgage rates. With rates changing every day, the dangers of being locked into a bad mortgage rate are serious, and could cause you to lose thousands of dollars down the road. So what can you do to prevent this from happening to you? Well, first of all, let’s learn a little bit more about today’s mortgage rates.
A mortgage rate is the price of interest that borrowers pay off of their principal amount. These rates are set by various banks, each of which is competing with one another for the attention of the consumers. This competition is one of the mechanisms of capitalism that helps keep mortgage rates relatively low.
However, where do the banks get their rates from? Well, in the United States, today’s changing mortgage rates based on the price of Mortgage Backed Securities (MBS). The greater the demand for MBS is, the lower the rate of interest is for home mortgages. Demand for MBS is created by investors, who often try to buy MBS when the stock market is down, or sell it when inflation is high. By paying careful attention to these trends in the marketplace, borrowers can determine when the best time is to take out a mortgage.
Why Do Mortgage Rates Matter?
Well, with a mortgage, borrowers lock into a set rate for a specific period of time. If you lock into a longer term, then you effectively shield yourself from any short-term market volatility. However, the flip side of that coin is that you also prevent yourself from capitalizing on any potential gains. For example, if you’re locked into a five year mortgage term, and mortgage rates gradually go down by a couple percentage points over the next two years, then you are paying thousands of dollars more than you should for the remaining three years of that mortgage.
Meanwhile, somebody who has locked into a shorter, two year mortgage term can refinance after the term is up in order to take advantage of those lower interest rates. In that sense, taking out a mortgage can be likened to high-stakes gambling: with thousands of dollars at stake, should you choose short-term risk now with a chance to minimize your interest in the future? Or should you lock into a long-term mortgage at a slightly higher rate in order to avoid market volatility?
There is a huge debate in the mortgage community about this very topic and, essentially, there is no right answer. Today’s mortgage rates are in a constant state of flux, and nobody knows for sure in which direction they are going. While today’s economic situation may prevent much up or down movement over the next two years, what will happen four or five years from now?
Only time can tell, which means that you should mainly focus on the mortgage rates today. In order to compare today’s mortgage rates, check online for independent mortgage rate charts, which will highlight the lowest and highest interest rates in the country, as well as the lender’s currents rates on variable or long-term mortgages. This will allow you to choose the best mortgage rate for you right now. After that, whether you choose a variable or fixed-rate mortgage is entirely up to you.