Mortgage Loan Outlet considers the mortgage interest rates with fixed, ARM, and interest only rate options for home purchase, refinance and second mortgage loans ARM’s

Mortgage Interest Rate Forecast for 2007

The US economy ended 2006 with slowing economic growth, a weak housing market, rising inflation and a declining dollar. How has this affected 2007 mortgage rates? According to the recently-released MBA economic forecasts for the next three years, fixed mortgage rates are expected to rise to about 6.5 percent by the end of 2007 and to remain around that level. The California Association of Mortgage Brokers (CAMB) annual mortgage forecast indicates the interest rates will remain favorable in 2007 with the rates likely to remain within one percent (1%) of current low levels.

Some experts indicate that Federal Reserve rate cut cycle should start in 2007, but not until the summer or fall because by that time the dollar may be making some sort of bottom in anticipation of Fed cuts to boost economic growth. Fed Chairman Bernanke spoke before Congress this week in the Fed's semi-annual report on monetary policy. While of course cautious, he continued to make soothing remarks with regard to the direction of inflation, which has been on a modest easing track for a number of months, led by settling energy prices.

With $1.5 Trillion dollars of mortgage loans set to adjust during 2007, to significantly higher interest rates, many borrowers may face difficulty. But, with interest rates anticipated to remain steady or dip slightly in 2007, this may be a good year to refinance into a 15-year or 30-year fixed-rate loan or one of the hybrid ARMs, which have longer fixed periods of three, five, seven or 10 years. With any adjustable mortgage, you run the risk of interest rates rising and then your payment rises. The interest rates on ARMs are based on a lender-specified fixed-rate margin plus a publicly-available prime rate index like the LIBOR Index, COFI Index, COSI Index, MTA Index, etc. Many of the indices are anticipated to remain relatively stable for a while then creep up slightly as borrower credit quality diminishes.

"Interest rates will remain extremely favorable to borrowers in 2007," said Jack Williams, president of the California Association of Mortgage Brokers. "Fixed rate loans are making a comeback for those who are refinancing while alternative loan products are likely to remain popular because of high housing costs. It is important for consumers to make sure they understand how the various loan programs work to ensure that the loan program they select meets their financial objective or fits their own unique needs." Alternate loan products include the controversial interest only and negative amortization loans that deviate from typical mortgages with principal and interest payments in favor of short-term affordability.

"The first six months of 2007 will probably be the ideal time for consumers to purchase a home," said Williams. "During that period, there will be fewer buyers, more housing inventory, low interest rates, and more motivated sellers." Just keep in mind that the 2007 Fannie Mae and Freddie Mac lending limits remain unchanged from their 2006 levels of $417,000 for a single-family home.