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.