What are the options for my personal home, second home or rental property? If you don't need to sell, try seeking a loan modification, which can take months with no guarantee of a new loan. Try the traditional route of a refinance, which might get your rate down, but its going to require having equity in your property. No equity, under water! Meaning my loan balance is more then the current value of the property. This seems to be the case with many property owners. Your options? Most property owners are working along with their lenders to reduce the balance due the lender, in order for the property owner to sell the property. This can aid the seller at closing, allowing the seller not to have additional cash required at closing to clear the loan. For the propose of this article, lets look at getting a new refinancing on the property. If you want to refinance your mortgage into a loan with a sub-5% interest rate, better hurry. Your window of opportunity is closing fast.

Lenders are still advertising rock-bottom interest rates, but for most borrowers, rates are rapidly rising into the 5%-plus category.

During the week of Jan. 7, the average 30-year, fixed-rate loan closed at 5.09%, according to mortgage giant Freddie Mac. That is significantly higher than the 4.71% it averaged at the beginning of the month, and experts say rates will go higher yet.

"Interest rates are up and they're not going to go down below 5% again," said Mark Zandi, chief economist for Moody's Economy.com, not for a while at least.

While homebuyers are still excited about these low mortgage rates, people who already have a loan and want to lower their costs are scrambling to lock in.

Refinancers act when the difference between the rate they're currently paying and the new one is at least a point or two wide, otherwise the costs of going through the refinancing wipes out any savings. In fact as rates rose in December, refinancing plunged, down more than 30%, according to the Mortgage Bankers Association.

A big reason for the jump is that a government program that has kept rates very low is winding to a close. The Federal Reserve has been purchasing mortgage-backed securities since early 2009, scooping up as much as $1.25 trillion worth. That has dampened rate increases by providing a ready market for the securities.

But the Fed's program lapses on March 31, when it cedes the playing field to private investors, who will almost surely demand higher rates. The Fed has already been slowing its purchasing, and that has corresponded with the recent rate increases.

As Treasuries go . . .

Not just mortgage rates have turned north. Treasury yields have as well, another indication that mortgage rates are headed skyward.

The yield on the benchmark 10-year Treasury has grown steeply over the past few weeks. It stood at 3.2% at the beginning of December and has soared to 3.84% as of Tuesday, a 20% jump.

Mortgage interest does not track Treasury yields in lockstep, but the two tend to mirror each other's movements.

Mortgage securities rates are always higher than Treasury yields because investors demand a premium above practically risk-free Treasuries.

The difference between mortgage rates and Treasury yields is usually somewhere near 1.7 percentage points, according to Keith Gumbinger of HSH Associated, a publisher of mortgage information. The current spread of about 1.2 percentage points is quite narrow.

That's bound to change, according to David Crowe, chief economist for the National Association of Home Builders. He believes mortgage rates will go up to about 5.5% by late summer. But other factors could push them into a larger-than-expected jump.
Economy bouncing back

For example, as the economy improves (it's hoped), businesses will expand production, hire new workers and open new sales outlets. All that requires borrowing in capital markets and the demand for lending will expand interest rates of all kinds.

A recovering economy also boosts corporate profits, making stocks a better bet for investors.

"Stocks tend to do better when the economy improves," said Stuart Hoffman, chief economist for PNC Financial Services. "Mortgage rates will rise to attract investment."

Hoffman's forecast is for rates to stay quite constant the rest of the winter and then elevate gradually during the spring buying season, the busiest time of year for home sales. He said they should hit about 5.5% by the end of June.
After that, the increases will slow, according to Hoffman, but still approach 6% toward the end of the year. He believes they'll cap at around 5.75% and are not likely to fall back to the 5% level again.

If you don't plan on moving and looking to stay where you are, consider getting your loan locked into a fixed rate. Hearing all the talk of future rate increases and knowing we are still holding rates at fairly low levels, getting a 30, 15 or 10 year fixed rate might be an option to consider.

Please visit my website: www.DougMasi.com
Doug Masi
Keller Williams Realty - Atlantic Shore