Deciphering the difference between mortgage and interest rates

Fed Chairman Bernanke announced that interest rates were going to be held at
the current rate through the end of 2014. He was specifically speaking about
the federal funds rate which is the rate the Fed lends money to banks. Most
consumers assume that interest rates and mortgage rates are the same. Of
course, interest rates do have an influence on mortgage rates but there are
many other factors that impact mortgage rates. Mortgage loan officers will
quickly tell you that mortgage rates change frequently. In fact, they change
multiple times per day. Currently, we have some of the lowest rates ever
recorded. But that will not last forever.

There are a number of factors that are likely to move rates higher over
time. Mortgage rates are influenced by long-term bonds. The 30-year bond has a
big impact on the 30-year fixed mortgage rate. Right now, the Fed is purchasing
those bonds through a program called Operation Twist. This is intended to keep
the 30-year mortgage rate low. But the Fed cannot keep doing this indefinitely
due to our debt and deficit problems. When that program ends, the rates will
rise and normal investors must come back to the table to purchase those bonds.
There is also pending legislation for Qualified Residential Mortgages (QRM).
This legislation proposes a standard 20% down payment plus a requirement for
the banks to maintain a holdback of 5% on every loan. Analysts expect to see
these higher bank costs recovered by increasing rates and more fees. Freddie
and Fannie have already implemented additional fees. FHA is expected to also
add new fees. The future forecasts from the Mortgage Bankers Association and
Freddie MAC predict that rates will rise in 2012 and 2013 back to the 5% range.
In 3-5 years, rates are expected to jump significantly. The average mortgage
rate for the past 50 years has been 8% and we are likely to see rates in that
range again.

We have the unusual circumstance of very low home prices and very low
mortgage rates! Now is definitely the time to buy.   Coming up,  I will report housing trends for Cobb County zip codes for Jan/Feb.
The spring selling season has begun!