Mortgage rates had started to lower from 2009 but the rates hit its lowest in the second quarter of this year (2010). The 30 year fixed mortgage rate fell to an average of 4.13% in the first week of October and the 15 year fixed rate mortgage rates too fell to 3.63%. However, according to market analysts, as the economy is gradually recovering, the mortgage rates will start rising too. That is what is happening now.

Importance of mortgage

You may need to take out a mortgage if you are planning to buy your dream home. But, most of the time it has been seen that majority of borrowers lose their sleep by getting overburdened to pay for the interest on the mortgage. Thus it is important for you to choose the right mortgage at the right time according to your affordability. Choosing a wrong mortgage can lead you to pay more towards the interest and a time may come when you won't be able to make the payments on the mortgage any further and as a result you may have to lose your home. Thus, it is important for you to have knowledge on the mortgage market.

Rise in mortgage rates

According to Mortgage Bankers Association, mortgage rates are rising and the rise in the interest rate of the mortgage is starting to take its toll on the new loan applications and refinancing. In the 1sat half of December, 2010, the 30 year fixed rate mortgage rates were around 4.91%. But in the 1st half of the second part of December, the rates rose to 5.19%. The average 30 year fixed rate mortgage went above the 5% mark for the first time since. Similarly the 15 year fixed rate mortgage rate and the 5/1 adjustable rate mortgage rates rose from 4.25% to 4.55% and 3.55% to 3.77% simultaneously. The average 7year ARM rose to 4.36%. According to Freddie Mac, this is the fifth week when mortgage rates have risen again. It is predicted that the 30 year fixed rate mortgage rate will settle into the 5% range within the next year and may even rise to more than 5.25%. The larger jumbo 30-year fixed rate mortgage interest too has risen to around 5.58 percent.

Last time, when the mortgage rates were above the 6% mark was in November, 2008. At that point of time the average rate was 6.33%, meaning that a loan of $200,000 would have carried a monthly payment of around $1,241.86. But now with the average mortgage rate above 5%, the monthly payment for the same size loan would be $1,073.64, thereby providing a savings of $168 per month for a homeowner refinancing now. Still this savings is comparatively less than what homeowners would have been able to save few months back. Thus the mortgage applications have gone down and as well as the refinance index too has gone down.

According to Mortgage Bankers Association too, the refinance activity has lowered with the increase in the mortgage rates. The refinance applications dropped by around 21.6% as compared to that in November. Borrowers refinance to lower their monthly payments on the mortgage so as the mortgage rates are rising, the refinance applications are going.

The reason for this increase in the mortgage rates is due to the gradually stabilizing economy and the surge of the Treasury bond yields, which directly influence the mortgage rates. However, the mortgage rates are still low if compared to that of 2008. So, market analysts opine that there is still time to get a new mortgage at lower rates and refinance to secure lower monthly payments. Also if the housing price increases with the stabilizing economy, and if you make regular on-time payments on your home loan (this is possible only if you have a good financial condition), equity may build up on it. This can prove advantageous for you later. You should also know that if you have good credit then you may get a low rate refinance loan.

In addition to all of these, it is also essential for you to know that even if the mortgage rates are favorable and your current circumstances seem to denote that mortgage refinancing would be beneficial for you, refinancing a mortgage will cost you money in the short term. If you don't plan to stay in your present home for long, then a mortgage refinancing might not be good or advantageous for you. However, if you plan on staying in your home for a long time, refinancing your mortgage now - before the rates climb any higher - could be a good financial move.