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The 3% Interest Mortgage Loan May Be a Thing of the Past

June 12, 2013

According to a recent article, the days of too-good-to-be-true mortgage interest rates below four percent will soon be just that.

As recently as early May, the rates for a fixed mortgage were at 3.3%, but in the last week of that month they had already escalated to 3.91% (compared to 3.67% at the same time a year ago). Even those seeking a 15-year mortgage saw rates jump to 3.03%.

What has caused such a marked jump in the rates?

  • The economy continues to make a recovery. During the recession, the Fed lowered short-term interest rates significantly in an effort to get the economy stimulated. Simply put, low rates equal an economy in trouble; higher rates indicate something more stable. Also, pending home sales rose to their highest point since 2010 (source). Finally, with job gains averaging more than 200,000 a month over the last six months, all signs point to better things on the horizon.
  • The Fed will no longer buy up mortgage-backed securities and treasury bonds to bolster the housing market – or will at least scale back on this practice. By doing so, the Fed allowed lenders to be able to offer record low rates while still showing more-than-ample profitability. The trickle-down affect is this: If the Fed stops buying in, the difference would have to be made up by the investors. As a result, the interest rates rise.
  • Today’s mortgage rates have been so low, they could not have been sustained for a longer period of time.

Over the course of time, an average 30-year loan interest rate is somewhere in the neighborhood of 5.5%. So, even if they go up a percentage point in the near future, a rate of four-something is still below the historical average.

With home sale and construction numbers on the rise, and the low mortgage rates propping up the once-sagging housing market, it appears the days of a sub-4% mortgages are gone, at least for the foreseeable future.

Ari Page Ari Page is the CEO of Fund&Grow. He resides in Spring Hill, Florida with his wife and two children.

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