Rise of the Interest Rates – Part 1

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blog-author-clayjeffreys2

Interest rates have been so low for so long, it sort of seems like science fiction whenever you hear of rates rising. Like some far off date of the pending rise of the machines to destroy earth, it never seems like it will actually arrive. Well, for interest rates, that day arrived in early May.

Correction, the rate war began on May 1st.

Correction, the rate war began on May 1st.

Interest rates rose almost 0.750% in the month of May and are now above the historic low rate levels prior to the past few years. What is the reason behind the increase. It is twofold actually. I’ll cover each of them in my next two posts.

It is no surprise that mortgage rates are rising when stocks are having record breaking days (after day, after day, after day). Rates and stocks typically work opposite of one another. Why? Rates are based off of the value of mortgage backed security bonds. As these bond prices increase, rates decrease. When stocks suffer, money comes out of stocks and goes into bonds. This increases the value of bonds, and lowers rates.

As stocks have been experiencing an all time historic run, money has come out of bonds and gone into stocks. As money comes out of bonds, it lowers their values and increases rates.

With all three indexes at or above their historic high points, more money has been pouring into stocks and helping fuel the increase in interest rates.

Where does this leave homeowners looking to refinance? If you’ve been hoping for rates to drop some more before refinancing, well, let’s just say it is going to take a while for rates to make it back down to where they were 30 days ago. Contact me today (scroll down to the bottom of the page for my info) and we can look into what a refinance will save you now with rates so much higher than they were in the spring.

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