Mortgage rates recently touched a new 15 month high, nearing 4 percent. This has been the greatest climb for mortgage rates since the Federal Reserve initiated a stimulus program to keep interest rates low. In November of last year, mortgage rates reached record lows – the 30-year fixed mortgage rate was at 3.31 percent, and the 15-year fixed-rate was at 2.77 percent.
For homebuyers, rising mortgage rates could mean a more expensive home purchase, at least for those who must finance their home. Some industry insiders say the spike in mortgage rates is a result of speculation that the Fed is pulling back. Keith Gumbinger of the mortgage company HSH told CNN Money that “the Fed’s [stimulus] policy might start to be pulled back soon, perhaps as early as September.” On hearing the news, investors rushed to adjust their positions, driving market volatility.
The current stimulus program allows the Treasury to buy up as much as $85 billion per month in mortgage backed securities. When the Fed begins tapering off its buying program, ordinary buyers will have to pick up the slack. Those buyers will demand bigger returns, and so drive up interest rates. But when the rates rise, homeowners will be less keen to refinance. However, many experts say that rates will have to rise much further before it impacts homebuyer behavior. Potentially though, higher mortgage rates could limit the number of bidding buyers, driving down home prices.
What Should Homebuyers Do?
Despite the recent spike, mortgage rates are still at historically low levels. Mortgage servicing advisors recommend homebuyers and those looking to refinance to go ahead and lock in at current rates. “Locking is the smart move in my book as always,” said Mike Owens of Horizon Financial Inc.
Online finance advising website The Motley Fool found 2012 to be a record year for mortgage originations in refinancing, but since those rates have risen in 2013, the number of refinancers is dropping. In early May, financial analyst David Hanson of the Motley Fool said that 30-year fixed-rate mortgages were perfect around 3.95. In little more than a month, they’ve jumped to just over 4 percent. But is it a problem for potential homebuyers? Not really, Hanson seems to suggest. Even with the rate increases, refinancing activity makes up more than half of all mortgage applications.
If you’re planning on refinancing your home, now may be better than later. You might have missed those all-time record lows from last November through March of this year, but you’ll still take advantage of historically low rates before they jump to over 5 or 6 percent.