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By Angela Murphy on December 4, 2009

Mortgage Rates Expected to Rise in 2010

According to the Mortgage Bankers Association, thirty-year mortgage rates are expected to average 5.4 percent next year compared to 5.07 percent in 2009.

Purchase originations are expected to increase in mortgage lending business next year. The association predicts that purchase originations will register a 52 percent share of total originations next year, compared to only an estimated 37 percent share in 2009. The trade group also expects existing and new home prices to post modest gains next year, registering a 0.8 percent and 0.5 percent increases, respectively.

The Federal Reserve has signaled that it intends to wind down its purchase program of mortgage backed securities. Other analysts are predicting this action will result in mortgage rates to be closer to 6 percent. 

A rate increase translates into a decline of about 10 percent in home buyers’ purchasing power.  A $300,000 mortgage at 5.02%, for example, works out to about $1614 per month.  At 6% the mortgage amount would need to be less than $270,000 to keep the monthly payment at $1614.