The bond market had been driving bond prices down (people selling low yield bonds and buying stocks for hopefully a better return), and the result had driven interest rates on the 2, 5, 10, 20, 30 year Treasuries higher.
The massive government so called "stimulus" and other gov spending can also drive rates higher.
The result of this has been higher near term interest rates.
China had been a big buyer of US Treasury Bonds (US debt). China has been so concerned about US deficit spending that Obama sent Treasury Secretary Geithner to China to reassure them that we will control our gov spending. (Do you think the gov can or are willing to control spending?)
"Geithner to Reassure China U.S. Will Control Deficits"
I've addressed this many times in the paste stating that the FED is in a Catch 22 situation.
If the FED raises rates (to curb inflation risks) or allows higher rates (bond market sets prices), that could cause consumers and banks in a difficult credit situation again.
The result could create a "double dip recession" where obtaining credit is not only difficult, but also more costly. Refinancing could also be more costly. This would also hurt or reduce bank profits, and increase costs to banks and businesses in an already fragile economy.
Further, what is worse is that higher rates will increase the net interest cost on the National Debt. The US Gov has borrowed over $10 trillion in total currently and has guaranteed, back stopped, lent, gave approx $15 Trillion more.
Can you imagine what higher interest rates could do to this kind of debt? It means we all will have higher taxes in the future no matter what your income is, it will be felt on all levels.
So the gov does not want higher rates right now.
The flip side (Catch 22) has been the inflation risk until last week or so.
Inflation makes things cost more, and while the stock market had soared 30-40?n the last quarter after being down about the same just prior to that this year alone, rising costs to consumers on basics such as food and energy (gas) is not what people need right now. But if you keep rates low inflation is the risk; if you keep rates higher, consumer spending is cut and the economy can tank again.
The FED has recently decided it will attempt to keep interest rates down by purchasing up to $1 Trillion more in US Treasury Bonds and gov't mortgages.
"Fed Plans to Inject Another $1 Trillion to Aid the Economy”
Recently oil prices have fallen, and a weak jobs report on 07-02-09 raised concerns of this double dip recession (again).
Higher oil prices were bullish for the market and helped increase stock prices, suggesting an economic recovery was underway. Ehhhh, I would not get overly optimistic just yet.
Now that oil prices have been falling, and the jobs reports are not looking so hot, the market is less concerned with inflation at the moment and more concerned of deflation (no or negative growth) or stagflation (some inflation plus a recession).
Here is the thing. In order for the economy to recover, one part of that equation means that interest rates have to go higher. Consumers must also begin spending, and jobs need to be created, not lost to the tune of approx 500,000 a month.
So what would I do?
If you found a rate that you can live with, I would try and refi if it saves you on your monthly mortgage without extending the term of the mortgage.
I would NOT, take out any cash in the refi for any reason. This is part of the reason why people are underwater on their house. They took out equity that may have existed at the time but does not now, and they are still paying on it as if the equity was there.
It's like they are paying on a house once worth $700,000 but is only worth $350,000 now.
I would also NOT get into any teaser, short term or adjustable rates. Short of a total financial collapse, longer term rates will go up and eventually the gov will not be able to do anything about it.
Choose a 30 year fixed.
Rates may go down a little if the economy slows again, but with Fed Funds Rate sitting at 0- 1/4?the FED has really no room to lower rates any further.