Are Mortgage Rates Going Up

Nobody Knows the Future

Calling your mortgage consultant and demanding to know which way mortgage loan rates are going to go will undoubtedly be an exercise in futility. Even the most well-versed mortgage professional doesn't know which way interest rates are going to go, although he or she may have a good feel for how interest rates may go for the particular financial institution he or she is employed with.

Keep in mind that financial institutions set their own interest rates. They usually base these interest rates on two things:

• An index
• The credit rating of the applicant

For this reason, a mortgage consultant intimating that interest rates may indeed go up may only be speaking in reference to the financial institution he or she works for. Don't take this advice as an insider tip pertaining to mortgage loan interest rates in general.

Up for Some, Down for Others

Mortgage interest rates are definitely increasing for a certain group of people: those folks who have damaged credit and who have foreclosures or other loan defaults on their credit reports. The subprime mortgage crisis has made most financial institutions quite wary of lending money to people with low credit scores because these folks are considered to be high credit risks.

Traditionally, people who are considered to be high credit risks receive higher interest rates for any credit product. If your credit rating is steadily decreasing, you can be assured that the interest rates of any mortgage loan available to you will also steadily increase as a direct result.

On the other hand, interest rates tend to decline for people with great credit. For this reason, a person who fastidiously repairs his or her credit and achieves a high credit score will find that the mortgage loan interest rates available get lower and lower. The more attractive an applicant can become to a lender, the more likely the lender will offer low interest rates.

Unwavering Rates

Some mortgage lenders offer one interest rate to all applicants regardless of credit rating. This means that instead of getting offered a low interest rate for good credit or a high interest rate for bad credit, all applicants who are approved for a mortgage loan receive the same interest rate. This is a common practice among conservative lenders.

These lenders base their interest rates on one or more indexes, most commonly the U.S. Prime Rate or the [Definition of Libor|LIBOR]] rate. They apply these indexes to both new mortgage loans and existing adjustable rate mortgages that will eventually adjust. Borrowers should be aware of what index the lender uses to set rates. Ask what margin the lender uses. In other words, many lenders use an index plus a preset margin. For example, if a lender sets mortgage interest rates based on the Prime Rate plus two, this means that the mortgage interest rate is whatever the Prime Rate is plus a two percent interest rate.

In other words, if the Prime Rate is 4 percent, and the financial institution has a margin of +2, then the interest rate of the mortgage loan will be 6 percent. Therefore the question isn't Are mortgage rates going up? but instead should be, Is the index rate going up?

Are Mortgage Rates Going Up or Down?

Mortgage interest rates do not generally fluctuate wildly, but small changes can make a big difference in the overall cost of a loan. You can get a general feel for what mortgage interest rates are doing by studying a history of the direction of interest rates. These charts can be found on websites like BankRate.com or Bloomberg.com.