Yesterday we had the worst day for mortgage rates we've had since October.  It was a landslide that most did not see coming.  Rates seemed to be fairly level over the previous month so the drastic change was unexpected by most. 

What happened?
The easiest answer is that investor money moved out of Mortgage Backed Securities and into Treasury Bonds.  This shift of money drove Mortgage Backed Securities to worse levels thus driving interest rates up.  The motivation for the move was to capture the higher rate of return of Treasury Bonds.  Mortgage Backed Securities had remained at high levels (good mortgage rates) while Treasuries were pushed lower.  This discrepancy between the two is what induced a massive amount of money to transfer from MBS to Treasury bonds. 

What's next?
It is likely that interest rates will improve over the next month or two but the chances of them reaching the levels of last week are slim.  It will most likely take patience to get even close to the previous levels. 

What does this mean for you?
Interest rates are still at nice levels so refinancing may not have as much benefit as it did last week but may still offer enough savings to make it worth-while.  If you purchased or refinanced as recently as a year ago the probability of saving money in this environment is still high.   In my opinion purchase business will remain strong because of the time of year as well as the $8,000 tax credit (available until 12/01/2009).

If you are looking to purchase or refinance this dramatic rate movement should open your eyes to the volatility of the market.  I would suggest working with an extended timeframe in order to capture the best rate possible and maintain your peace of mind. 

Micheal Shotnik
Summit Home Mortgage