During the days leading into October, experts could not agree on mortgage rates predictions as to whether they will increase, decrease, or stay the same through mid-November. Almost half (47%) of the experts polled believe mortgage rates will rise. About 43% believe rates will fall slightly. The rest, about 10%, believe interest rates will remain relatively unchanged.
Those predicting higher rates say that if $700 billion from the bail-out is pumped into Wall Street, then supply could exceed demand in the bond markets causing a rise in mortgage rates Bonds are certificates of debt issued by a government or corporation guaranteeing payment of the original investment plus interest by a specified future date. The Bond Market Association estimates that mortgage debt makes up $6.1 trillion of the $25.9 trillion bond market.
Experts predicting lower rates say that if the Treasury purchases exclusively mortgage backed securities (MBS) rather than government backed securities, mortgage rates will drop.
Government backed securities are government debt obligations backed by the credit and taxing power of the country thereby having very little risk of default.
Mortgage backed securities are debt obligations that have been assembled into pools by accredited entities (governmental and private) and sold to investors. These pooled debt obligations are called Mortgage Backed Securities or MBS. The money banks make from MBS is loaned out to their customers. The banks don't have to worry if the customers have the assets to cover the loans they make to their customers because the banks sell the loans as MBS and get their money back that way.
Only time will tell how the bail-out money will be spent. How it is spent will directly affect mortgage rates Mortgage rates predictions for the next 18 months are that rates will fall. However, if inflation is not controlled, the long-term mortgage rates predictions will forecast increases in mortgage rates.
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