Knowing When to Take Advantage of Falling Mortgage Rates

There are several reasons why mortgage rates charged for consumer and business loans fall.  In particularly hot real estate markets such as Seattle or Atlanta, even a small movement in mortgage rates can have a big effect on the price and availability of homes, not to mention the new home construction market and all the interrelated industries that serve it.  Knowing when it's time to invest in real estate and when it's time to lock yourself into fixed mortgage rates is part economics and part artful prediction.

For starters, the prime rate is essentially controlled at the federal level by the actions of the Federal Reserve.  Ultimately it is the chairperson of the organization that makes the ultimate decision, but this is heavily influenced by the currency, stock and bond markets.  As consumer spending and business indicators move up and down, mortgage rates track the best guess of a few and the mood of the nation as a whole.  When times seem lean, home and business mortgage rates tend to drop in response to what is perceived as a likely glut of available housing.

In part, there is also a fear of what sort of signal a glut of housing will send to the financial markets.  Conditions that favor high levels of selling on the stock market are taken very seriously by all factors of the economy, just as resources and regional stability are a very important part of the forces that drive that speculative engine.  By paying attention to all the factors that influence mortgage rates and have a good, working knowledge of history, you can get a pretty good idea when mortgage rates are going to be moving, how fast they'll fall and how long they'll stay there.

Of course, low mortgage rates are good news for anyone buying or selling a home.  It's also good news for other types of lending since there's money to lend when lenders assume people will have money to pay for things.  In the event of dropping mortgage rates that are triggered by specific market crises, such as low wages and resource pressures that pit consumer spending against impossibly tight budgets, even a drop in interest rates may not signal a return to consumer confidence.  Here, dropping mortgage rates tend to stop dropping when continued pressure from the bottom up is no longer influenced by their further decline.

Being able to predict in some way or form what mortgage rates are going to do in the next year or 20 years gives you the ability to fully appreciate the forces at work on adjustable rate mortgages.  There are certainly times when you can take advantage of very low adjustable mortgage rates and save a bundle, but if you choose to take advantage of those opportunities, you need to be aware when it's time to pull those monies into a fixed rate mortgage, protecting yourself from any further hikes in future mortgage rates.

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