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Why You Shouldn't Trust Mortgage Rate Predictions

Those who are in the process of taking out a new mortgage loan to finance the building or purchasing of a new home or to pay off an existing loan often look to mortgage rate predictions to help them decide on whether or not to lock the deal. Economists and other mortgage professionals are often asked which way they think mortgage rates are leaning; but, the truth is that mortgage rate movements simply cannot be predicted.

Mortgage Rate Predictions

Mortgage rate predictions used to hold some ground in the world of economists and homeowners. Understandably, before people take out a mortgage they want to know if it is the proper time or if they should hold out for a while and see if mortgage rates go down. Those with adjustable mortgage rates also want to know which way rates are going because higher rates can indicate a higher monthly payment and lower rates suggest a lower monthly payment. Businesspeople also follow these predictions closely and often rely on them to make calculated business strategies.

Caution

Despite the proliferation, still, of mortgage rate forecasts in the papers and online by well-known market commentators and supposed "experts", the truth is that mortgage rate predictions can rarely be trusted. They are inherently difficult to predict. It is very important to be cautious when consulting these predictions because those who come up with them rely on a variety of sources, including historical data, current trends in the economy, anticipated changes, as well as their own gut instincts.

There are a number of websites featuring forecasts for mortgage rates from purported economic and mortgage professionals. Remember that no matter how experienced the forecaster may be or how foolproof his forecast may sound, forecasts are nothing more than well-informed guesses, and should not be received as the complete and utter truth.

You should also probably think twice about trusting what your bank representative tells you. Remember that banks want you to borrow money from them - that is, after all, how they make money. Therefore you should always take any advice regarding mortgage rates they give you with a grain of salt. The same goes for money lenders. No matter how accurate a lender's predictions may seem or how loudly and aggressively he announces his predictions on TV or on the Internet, remember that he is trying to get your attention, hoping that you will be inspired or alarmed enough to apply for a loan from him.

Making Your Own Predictions

Mortgage rate predictions are not solely for economists or mortgage professionals to make. If you've been following the movement of mortgage rates for a while, then you already have a general idea of what direction rates are leaning. Remember that the wider the span of your mortgage rate prediction, the less accurate it will be. To end up with a fairly accurate forecast, you have to think in weeks or months. For example, if you want to know in what direction rates will go in the next two weeks, consider the interest rate chart for the past few months and you'll get a sound guess of what rates will be like.

Because mortgage rate loans are spread out over a considerable period of time, even the tiniest decline can mean savings in the long run. Watch out for even the smallest rate fluctuations because every drop is significant.

Also, keep in mind that radical fluctuations are fairly uncommon for mortgage rates. Big leaps upward or downward don't usually show up in mortgage rate charts. In fact, a three percent drop could already mean economic chaos. Such fluctuations are unlikely to come about spontaneously so don't watch the mortgage rate market expecting to see them.