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Are Mortgage Rates Going Up?

A mortgage is a specific kind of loan. It is a loan that is already collaterized, meaning it has tangible assets that the lender can seize if the borrower defaults. Mortgage rates have been in use for centuries but today the term has taken on a special meaning. A mortgage is seen as a homeowner’s ticket to wealth. Land speculation has been present in America since the colonial period, but the financial crisis of 2008 – onward has presented a unique situation. Speculation, whether in stocks, bonds or real estate, has always resulted in recessions or depressions. The current crisis, however, resulted from speculation in multiple areas all related to a specific form of mortgage – subprime mortgages.

Consequently the real estate market has been undergoing a tremendous deflationary period, with home prices falling by 2.3% in the last three months of 2009 alone. Over the past three years home prices have fallen by 27%, according to CNN. This has resulted in increased foreclosures as many borrowers now owe more than what their house is worth. Foreclosures, in turn, mean that the deflation of home prices will only continue as the market tries to find solid ground.

What homeowners are really worried about is this: will the interest rate on their mortgage go up? The answer depends on the type of mortgage the homeowner has. Interest rates on fixed mortgages will not go up due to the terms of the loan. Adjustable rate mortgages will likely increase considerably since ARMs fluctuate according to market conditions. With the market in deflation and recession, falling home prices indicate to lenders increased risk, so interest rates will probably rise on mortgages with adjustable rates because banks want to prevent any further losses.