Mortgage bankers: rates to rise on home loans

Last Christmas, homeowners like Brad Kahn in Rohnert Park, Calif., found mortgage rates low enough that refinancing lowered their monthly house payments. Now, rising interest rates are slowing mortgage refinancing.

Have you missed the boat on getting really low-interest home loans?

Home lenders think so. The recent rise in interest rates has caused loan refinancing to fall, so much so that the Mortgage Bankers Association (MBA) Monday lowered by one-quarter its estimate of home-loan originations for the year.

The MBA now says mortgage originations this year will total just over $2 trillion, a decline of more than $700 billion from its March forecast. All but $84 billion of that fall comes from a downward revision in refinancings, which the group now says will total just under $1.3 trillion for the year.

Also, prospects don't look good for rates to go back down, the group says.

"The MBA forecast is for increasing rates through the end of the year and through 2010," wrote Jay Brinkmann, the group's chief economist, in a release.

Not everyone agrees.

"We think [interest rates] have further to fall," wrote John Higgins, senior market economist with Capital Economics, in an analysis Monday. "Although the economy is likely to grow marginally in 2010 and 2011, it is unlikely to expand near its potential. This suggests that the amount of spare capacity in the economy is going to increase, keeping downward pressure on inflation."

Recent moves in interest rates support both views, depending on the time frame. Interest rates on 10-year US Treasury notes – a key influence on mortgage rates – reached a seven-month high on June 10, as hopes rose that the economy was beginning to recover. But a less positive outlook among investors has pushed rates back down since then. On Monday, they had fallen roughly a quarter point from the high in June.

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