With mortgage rates steadily rising in recent weeks, it's no surprise if you're wondering if it's worth it to apply for a new mortgage right now. And if a low interest rate is your main concern, many economists agree that rates aren't likely going anywhere but up.
While it seems that rates are on an out of control, fast-paced incline, let's take a look at historical data from the Mortgage Bankers Association (MBA). The interest rate for a 30-year fixed-rate mortgage was at 4.58 percent as of June 28, 2013. While that's much higher than the 3.38 average interest rate we saw back in late 2012, it's still relatively low compared to historical data, which shows that the average 30-year fixed interest rate just five years ago in 2008 was a whopping 6.35 percent. So one thing we can agree on is that even though rates have risen in recent weeks, they're still really low relative to what they were.
But, what if an outstanding cell phone bill you forgot to pay a few years ago, or that car loan payment you forgot to send in sent your credit score into a spiral? Is it worth it to try and get a loan now since you likely won't qualify for a low rate anyway?
The answer is yes, you should still try to get a loan. Here are a couple of reasons why: for one, even if you don't qualify for the lowest interest rate possible, the longer you wait, the more of a chance there is that your interest rate will just keep increasing. For example, say you applied for a loan in January 2013 when the average interest rate was 3.63 according the MBA. But, your credit was less than stellar, so you qualified for a rate of 4.5 percent. Now let's say you decided to wait to apply for that mortgage and get your credit score a little higher to lock in a lower rate. If you applied now in July 2013 instead - when interest rates are at an average of 4.58 percent - you'll likely need a much higher credit score to get that same rate you could have locked in back in January.
Now you may be thinking that since rates have the ability to fluctuate so frequently, there's always the chance they may go back down. And while no one has a crystal ball that can accurately predict where mortgage rates will be in the coming weeks or months, there are some indicators that point to mortgage interest rates rising even higher.
The first indicator is the announcement of the planned government pull-back from the mortgage-backed securities purchasing program. At just the mention of the end of this program from the Fed's Chairman Ben Bernanke, mortgage interest rates shot up almost immediately. Imagine what will happen to interest rates when the government actually does stop buying the mortgage-backed securities?
Second, the low rates that we saw toward the end of 2012 are unprecedented, and a result of the recession that plagued the housing market since the economy fell in 2008. Now that the economy is on the upswing, mortgage rates will continue to rise accordingly. In fact, Fannie Mae's chief economist Doug Duncan said in a June 2013 CNN Money article that "It's unlikely that rates will ever be that low again," in reference to the record lows in late 2012.
So the bottom line is if you're thinking about buying a home, now is the time to make a move and lock in a low interest rate since it's likely that rates will continue to increase in the coming months.