Tuesday, June 2, 2009

Mortgage Rates Jump

Some of you may have notices that mortgage rates have jumped substantially in the last few weeks. A 30 year fixed rates averages over 5.25% when it was below 5% only a few weeks ago.

So how does this affect the loan modification process? Your lenders are watching rates as well. A modification is similar to a refinance, so the prevailing interest rates can affect what the lender is willing to do. Although the Obama Making Homes Affordable Plan discusses looking to getting homeowners into a payment that is 38% or 31% of their gross monthly income through interest rate reductions, extension from 30 to 40 years to pay, or even principal reduction, lenders also worry about fixing a rate too low.

It would appear that this recent increase in rates may only be temporary, but it is hard to tell. The 30 year fixed rate trends closely to the yield on the 10 year US treasury bond which went up significantly over the last few weeks. Some speculate that this is due to the increased demand for bonds; however, the yield goes up when the price goes down. Normally higher demand would tend to increase the price, and thus, the yield would go down. This increase in yield may simply be a correction to what its market value should have been or show an indication that the economy is actually growing and in recovery.

We will simply have to wait and see.

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