Mortgage rates hit 13-year high

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  • Mortgage rates rose this week, erasing last week’s decline and reaching the highest level since 2009 at 5.38%.
  • The Federal Reserve, meanwhile, announced its latest measures to contain inflation, including raising its benchmark short-term interest rate by 50 basis points.
  • The Fed hike does not directly affect mortgage rates, and experts say the central bank’s plans to unwind its purchases of mortgage-backed securities have likely already factored into rates.
  • Homebuyers are increasingly turning to adjustable rate mortgages (ARMs) and other strategies to combat rising rates, though interest rates still aren’t high from a multi-year perspective. decades.

Last week’s drop in the 30-year average mortgage rate was short-lived as the rate rallied this week to its highest level in 13 years.

The average 30-year fixed rate was 5.38%, up 16 basis points from last week. This survey was conducted before the Federal Reserve announced on Wednesday that it raise its benchmark short-term interest rate by 50 basis points.

Fed News Not Directly Correlated to Mortgage Rates, Says As Watanasuparp, National Director of Strategic Sales at Citizens Bank. “It will have an effect, but not a 50 basis point correlation effect. Often the rates are cooked before the [Fed] Meet.”

This week’s increase in mortgage rates continues a trend of significant increases, reducing the amount buyers can afford to pay for a home. Rates started the year around 3.3%, near their lowest level ever, and are now at levels not seen since 2009. Despite rising and rising house prices, rates are still low by historic standards and buyers shouldn’t be scared if they find a home they like and can afford, says Watanasuparp.

“Get in on the game,” he says. “Understand your options and take advantage of the low rate environment.”

About the latest mortgage rates

Unless otherwise noted, mortgage rate data in this story is based on mortgage rate information provided by national lenders to Bankrate.com, which, like NextAdvisor, is owned by Red Ventures.

What does the Federal Reserve rate hike mean for mortgage rates?

The Fed is raising rates and taking other steps to navigate the economy through the highest inflation in four decades. “Inflation is far too high and we understand the difficulties it is causing, and we are moving quickly to bring it down,” Fed Chairman Jerome Powell said. said wednesday. In March, the Fed raised the target for the federal funds rate, which affects how banks lend money to each other, by a quarter of a percentage point, the first hike since the start of the pandemic. This week, he raised it again by half a percentage point. The Fed has indicated it will likely continue to raise the rate throughout the year, although Powell said the central bank is not actively considering 75 basis point hikes.

Perhaps more relevant to mortgage rates, Fed officials announced plans to begin selling some assets the central bank had purchased to support the economy during the pandemic, including mortgage-backed securities. The central bank’s purchases of these sets of mortgages in the secondary market have helped lenders offer more loans, and easing that support could affect mortgage rates, Watanasuparp said. “They kept the market artificially low because of the liquidity they provided in the secondary market,” he says. “If they don’t buy mortgage-backed securities anymore, that’s going to make the cost of borrowing even more expensive, which will also raise interest rates a bit.”

Mortgage rates could plateau around current levels, Mike Fratantoni, senior vice president and chief economist of the Mortgage Bankers Association, predicted in a statement. “Financial markets have been trying to gauge the impact of the Fed’s actions in this cycle, and they’re likely pricing in the resulting economic slowdown as well.”

Expert predictions: what will happen to mortgage rates in May?

The sharp rise in mortgage rates so far this year is unlikely to continue at this speed for too long, experts say. “The increase we’ve seen over the past two months is unprecedented. We’ve never seen mortgage rates rise as quickly as they do,” Ralph McLaughin, chief economist at Kukun, a real estate technology platform, told us. “[That pace] is very unlikely to continue.

The big sticking point is what’s happening with inflation – the same factor the Fed is trying to address. “As long as inflation is not under control, the risk is certainly that rates will increase”, Danielle Halechief economist at Realtor.com, told us.

What Other Mortgage Industry Data Shows

the weekly survey by Freddie Mac showed that the 30-year fixed rate average rose 17 basis points to 5.27%. It increased by more than 2.3 percentage points compared to last year.

Freddie Mac is a government-sponsored entity that buys mortgages on the secondary market, and although its survey methodology and when it collects data differs from others, such as the Bankrate survey referenced in this article. Although mortgage rate averages vary, they show similar trends over time.

Historic Mortgage Rates: Today’s Rates Still Favorable

Here’s a visual overview of how current mortgage rates compare to those of the past 22 years.

Rates are higher than they have been in over a decade, but compared to where they were before the financial crisis, they are still favourable. It is also important to consider that they are relatively small compared to other types of debt, such as credit cards. “If you look at the market as a whole, a rate of 5% is still very low,” says Watanasuparp.

What can consumers do when mortgage rates rise?

Experts say there are a few key strategies you can use when shopping for a mortgage in a rising rate environment. First and foremost, shop around for a mortgage. As rates change rapidly, they can vary considerably from one lender to another. Also consult with experts, working closely with an experienced loan officer and real estate agent, says Watanasuparp. “It’s a globally competitive market and you want to make sure you’re prepared,” he says.

Buyers are also increasingly turning to loans other than the typical 30-year fixed-rate mortgage, Watanasuparp says. These include adjustable rate mortgages, which carry more risk but come with a “call rate”, usually fixed for several years at the start of the loan, which is lower than the prevailing fixed rate over 30 years. “There’s an awful lot of people now enjoying an ARM product if they don’t plan on seeing themselves in that house for 10 years,” he says.

The average rate on a 7/1 ARM, which would bear a fixed rate for seven years and change, with the market, every year thereafter, was 4.2% this week. To avoid being subject to the adjustable rate period, buyers can either refinance or move out before it takes effect. Watanasuparp suggests getting one with a fixed term of a few years longer than you expect to stay in the house. “Give yourself some space,” he says.

Buyers are also increasingly considering buying mortgage points, or discount points, in which you pay a fee up front in exchange for a lower interest rate. This can only be beneficial if you plan to hold onto the loan – without moving or refinancing – longer than breakeven, at which point the money you’ve saved from lower interest exceeds what you’ve paid for. ‘advance. “It really depends on when your break-even point is reached,” says Watanasuparp.

For existing homeowners, rising rates have made refinancing just to save money with a lower interest rate a rarity. Many people do this to get money for debt consolidation or home improvement, says Watanasuparp. With house prices so high, homeowners are more comfortable getting money to upgrade their current home than trying to find a new one, he says. “Most of them use it to reinvest in their homes.”

Whether you’re looking to refinance or buy, you can compare lenders’ offers here using this Home Loan Comparison Calculator. You can enter the loan amount, rate, fees, and term for each offer and see a real side-by-side comparison.

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