Mortgage rates are going up.  I can safely say that within the very near future that mortgages rates are going to climb.  How can you be confident that my statement will come to fruition?  It's because of the actions of the government and the Federal Reserve.  There stimulus and overt spending will cause interest rates to go up.

A little bit of background may be necessary to understand why. There are two ways that the Federal Reserve can raise money: it can sell short term bonds or it can print more dollars. The latter is more difficult than most think because of political reasons and for reasons that it really upsets people that are government bond holders. Think about if you have a fixed rate mortgage (typically 30 year fixed). If you could pay in inflated dollars would that be good or bad for you as a debtor? If you answered it would be good, you would be correct. Conversely, people who are lenders are getting back their money in inflated dollars, i.e., dollars that are worth less.  They are not happy with this arrangement. Countries like China and Japan have lent a lot of money to us, more than anyone else. They would particularly be unhappy if the Federal Reserve just haphazardly started priting money.

So the Federal Reserve uses its open market operations (buying and selling short term treasuries) to raise the cash. Now ironically, when the Federal Reserve sells bonds it is doing so for cash so it is actually taking out money from circulation. If it did nothing with this money there would be a contraction in the money supply which would be deflationary. And that is the crux of the argument. If the Federal Reserve gives the money to the government to spend than it has the opposite effect of sending all that money back into circulation and it will crash the price of bonds (due to the massive amount of selling of bonds the Federal Reserve will need to do in order for the government to spend all the money it is allocated to the bailouts, stimulus, etc.

Now one last item to understand about bonds for the purposes of this discussion is, if the prices of a bond falls, it's yield (or rate) will increase inversely.  So having the Federal Reserve sell massive amounts bonds will make the price of bonds fall drastically which will in turn make rates climb, again drastically.

Now I already can hear some of you saying that the Federal Reserve operations only affects short term yields of up to one year or less. How on earth can that affect mortgages which are typically targetted at the 30 year tenor? This was already answered when I stated that when the Federal Reserve receives cash for the selling of the bonds, it will give the cash to the government to spend at will. Due to this inflationary move, the holders of long term bonds are going to panic because again, their bond holdings are going to be worth less. So they dump the long term bonds which will also create the prices of these long bonds to drop. Again, getting back to the inverse relationship of prices to yield, a drop in price equates to an increase in the yield. Thus the long term bonds like the 30 year (the one that is targetted to many mortgages) are going to climb. It's practically a foregone conclusion.

Please note: I have removed the link that was here due to the FTC's new and sketchy guidelines about what constitutes an endorsement. I apologize if you are reading this and it left you a bit puzzled. But there are too many unknowns in these new guidelines to take a chance.