Interest rates on refinance mortgages continue moving upward
Interest rates on mortgages are moving up fast, the rapid rise with interest rates is likely to slow down the refinance market. The rapid increase with rates is not the news the government was hoping for in the midst of the current housing crisis. Fixed mortgage rates have been available at or below five percent for the better part of the last six months. Hundreds of thousands of home owners have benefitted in refinancing their home mortgages into fixed rates and lowering their house payments. The ability to refinance and lower payments for housing has helped to push more money into consumer’s hands at a time when almost everyone is adjusting their finances.
The rapid decline with interest rates was a major motivation in the federal reserves decision to begin purchasing mortgage backed loan securities in December of 2008 and again in March of 2009. There decision to purchase up to five hundred billion of mortgage backed loan securities, helped to facilitate an immediate drop with mortgage rates of over ½ percentage point and drove interest rates below the five percent level for both fifteen and thirty year loan terms. The move set off a refinancing boom, but the bigger picture was this was another component the government hoped would help to stabilize home prices and the housing market. The news on home purchases has been slightly improved, but home foreclosures and mortgage delinquencies are continuing to move upward. Finding the right solution to the housing market has been very difficult for the government, they have attempted to keep mortgage rates low, offered government rebates up to $8,000 and pushed for loan modifications and streamlined refinance loans.
The move upward with interest rates is likely to be closely watched by the government as it could jeopardize a housing correction. The main reason rates are beginning to rise can be traced to two areas. Investors believe that equity opportunities in the stock market are more attractive, creating less demand and higher yields, driving the rates of the mortgage backed bonds upward. The second concern is the amount of debt that the Fed and Treasury continue to have to service is growing rapidly. Investors are more concerned of future inflationary challenges in the market which are causing increased bond prices. The yield on the ten year bond has risen from 3.45 to 3.75 percent over the past two weeks and interest rates for both refinance and purchase home loans have adjusted upward by at least ½ percent.
Refi rates follow stock market up
Mortgage refinance rates are following the same path as the stock market. The stock market has rallied sharply following the low point in March. The market is up over 30% during the past sixty days as investors have put more money back into equity positions with a belief that the economy will soon be heading for brighter days.
Mortgage rates are following the same path as the market, with a significantly smaller adjustment. Over the course of the past thirty days the average rate on a thirty year fixed rate mortgage loan has adjusted up by approximately .375 pts. The yield on the ten year bond, which is a leading indicator of where mortgage rates are tracking is up from 2.35% to 3.29% as of Monday.
The majority of economic news over the past two weeks has been received with mixed results from investors who are gleaning for momentum. The market has been able to see past some of the mixed news (job report – cpi) with a belief that the overall health of the U.S. economy will rebound by 2010 as consumer confidence begins to grow. The market seems to be trying to refocus on corporate earnings and has a smaller degree of concern for the day to day rumblings of dire that sent the stock market into a tailspin earlier in the year.
Mortgage rates are still available near historic low levels and the average rate for a fifteen year fixed rate loan was below five percent. The average rate on a thirty year fixed rate loan is now trending above five percent and closing in on 5.5% with zero points with most national lenders. The upward tick with mortgage rates is not likely to deter new home buyers who are taking advantage of great housing inventories and the government tax rebate. The upward movement could slow down refinance loans with mortgage lenders as consumers debate the return on investment of refinancing their mortgages. Most consumers benefit from a reduced mortgage rate through refinancing, but the recent challenges in the market have resulted in higher fees passed onto consumers. Fannie Mae and Freddie Mac the countries two largest agency lenders (they securitize most mortgage loans) have raised their risked base loan pricing. The net result is most consumers who have good to excellent credit ratings (680-740 fico scores) are required to pay additional points for their mortgage based on variables such as loan to value, primary residence, etc. The additional fees should be taken into consideration when you are determining your breakeven point with your mortgage refinance.