Mortgage rates slid a bit lower as summer is coming to a close.  Entering into the first week of September, mortgage rates are perched once again at the low point for the year.  With home loan rates this low and the majority of economists calling for higher interest rates and inflation rates in the near future, now is the time to borrow and borrow often.  ‘

If interest rates do move higher down the road, borrowing costs will only rise from where they are today – a little obvious.  If inflation creeps up with interest rates, asset prices should rise as well.  The largest asset held by most Americans is their house and rising inflation and asset prices should mean rising home prices.  Prior to the great recession, net worth in housing was the greatest absolute amount of net worth held by Americans and the greatest increase in net worth.

A greater rate of inflation also leads to rising income, along with rising costs.  But with a fixed rate mortgage, the monthly payment to the bank or mortgage lender is fixed and will not rise with inflation as a homeowner’s income most surely will.  This phenomenon allows borrowers to pay back loans to the banks and mortgage lenders with less valuable dollars as higher rates of inflation erode their value.  A low fixed rate loan is a borrower’s best friend when inflation starts to rise and, conversely, a asset and liability management nightmare for banks. 

In fact, once inflation rates begin to move higher in earnest, banks and mortgage lenders will start increasing loan rates rapidly to not only compensate for the rising rates but to also compensate for future increases as well.  During these times, the yield curve steepens with long term interest rates measurable higher than short term rates, a position not seen in the markets for some time due to the ultra low interest rates and inflation rates we have experienced.

So much for the future, let’s look at where we are today.

The recent mortgage rate decline has put the average 30 year conforming loan rate down to 4.164%.  The rate reduction that took place during the last week of August cut just slightly more than two basis points off the costs of a 30 year home loan.  One basis point is equal to 1/100th of a percent, not much of rate cut.  However, the average 30 year mortgage rate started 2014 at 4.704%, a difference of almost three quarters of a percent.

30 year jumbo mortgage rates ended the week at 4.078%, continuing to stay below the rate of the 30 year conforming loan.  FHA rates on a 30 year loan closed out at 3.933%.

Short term rates were rather volatile once again with lower rates on ten, 15, and 20 year term loans.  The average ten year mortgage rate was 3.091%, the 15 year mortgage rate was 3.378%, and the average rate found on the 20 year home loans was 3.866%.

The mortgage rate information obtained in the weekly mortgage survey conducted by assumes the purpose of the mortgage loan is to purchase an existing single family home as a primary residence with a loan amount of $250,000 and an estimated property value of $325,000.  The current mortgage interest rates found in the survey may change and are subject to change based on location, geography and other terms and conditions specific to individual loan requests.

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