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“Trickle Up” Economics

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Refinance before interest rates are raised

Mortgage Rates Slowly Inch Higher

In the wake of a series of positive reports about the US economy, the message the financial markets appear to be sending homeowners is fairly clear—the days of record low interest rates appear to be numbered. For those families who have been thinking about refinancing to lower their house payment or shorten their loan term, or have been wanting to pull cash out to make home improvements, this may be the last chance to do so.

Homeowners have enjoyed a sustained period of record low interest rates unlike any time in recent history and it’s been difficult for the experts to pinpoint exactly when the party will end. Over the past three years, economists and pundits by the dozens have taken their turns pronouncing that “the end is near” and that we will soon enter a period of rapid growth accompanied by higher inflation and higher interest rates. With few exceptions, these economists have repeatedly been proven wrong and in the process have subjected themselves to quite a bit of derision. As the old saying goes, “Economists were created to make weather forecasters look good.” After this brutal, snow-packed winter, who would have thought that was possible?

True to form, many of those economists were forced to eat crow in December when the price of oil plummeted over 50% and the Russian economy experienced a currency crisis that sent institutional investors flocking to the safe haven of U.S Treasuries. Mortgage rates began dropping unexpectedly. By mid-January, the yield on the 10-year Treasury bond, long considered the bellwether for mortgage rates, had dropped to just 1.75% and rates for 30-year fixed-rate mortgages had fallen below 4.00%. At that time, we urged readers of this Blog to consider refinancing, even if they had just refinanced. The unexpected drop in mortgage rates was quite real.

However, in the past few weeks, oil and gasoline prices have rebounded, while the January and February Unemployment Reports have showed sharp increases in hiring. The positive employment data has reassured the financial markets and the yield on the 10-year Treasury bond has risen to over 2.10%. Mortgage rates still remain stubbornly low but have gradually “trickled-up”, increasing about .25% from their mid-January lows.

There’s no telling when the “trickle-up” effect of mortgage rates will end, but don’t make the mistake of delaying or postponing your refinancing plans. While no one has a crystal ball, there’s certainly no denying that mortgage rates are trending higher. As we all know, many families tend to retrench and reduce their spending habits after Christmas. Please don’t make the mistake of putting off refinancing if you can lower your interest rate and, if you have an existing FHA loan, reduce your mortgage insurance premium at the same time.

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