Once Again Rising Mortgage Rates

These are anxious times for anyone looking to buy a home or refinance a mortgage. Mortgage rates have jumped a half-point in the last seven days. That's adding hundreds of dollars to a typical monthly payment. That has sent a chill through the housing market at a time when so many experts have been saying this is the time to buy.

Mortgage rates have ticked up since last week ,the national overnight average Monday for a 30-year fixed-rate mortgage was 5.23 percent, according to Bankrate.com. Last week, it was 5 percent.

"Even though the mortgage rates have gone up, they're still pretty low," said Vinod Agarwal, an Old Dominion University economics professor. "Are they expected to go up? I do not know. These rates fluctuate day by day. Mortgage rates are still pretty low, and I think this is the time to buy or refinance a house."

Rates began dipping to historic lows at the end of last year, when the Federal Reserve announced it would buy billions in mortgage-backed securities and Treasury bonds to keep mortgage rates low. The price of those securities immediately went up, which caused mortgage interest rates to go down, according to Bankrate .com. They dropped again when the Fed made its first purchase. 

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"In the last week, we've seen more volatility in the interest rates than we've seen in years," said Mike Manicone, branch manager and senior loan officer of New South Federal Savings Bank in York County. "We're not sure what the next several months have in store."

After a barrage of homeowners refinanced to take advantage of low interest rates, a flood of mortgage-backed securities hit the market. At the same time, investors are seeing a greater return in the stock market, and so are spending less in the bond market, including mortgage-backed securities, Manicone said. There is also some fear of inflation because of the influx of economic stimulus funds the federal government has promised, he said.

The Fed has been spending about $25 billion a week and has spent about half of the $1.25 trillion it intends to, Manicone said.

"That will continue, and that should keep rates in this range of 5 and 51/2 percent, 30-year fixed rates," he said.

That's up from interest rates of between 4.5 percent to 5 percent that had been the case for months until last week, Manicone said.

On top of that, discount points, which are a premium paid up front to land low interest rates, have gone up. The difference between 1 point last week and 3.5 points Monday is about $7,500 on a $300,000 loan, Manicone said.

"That's what hits people," he said.

So anyone who was debating about whether to refinance may want to make the leap soon, especially because some offices are experiencing a lag time in accommodating the surge of applications, he said.

"If they're interested in refinancing, they should talk to their mortgage banker pretty soon," he said.

Does it indicate the economic picture is getting rosier? Not exactly, Agarwal said.

People are reacting to market conditions, he said. Back last fall, the credit market was basically frozen. Now, there's lending activity going on, which is a good sign, he said.

SOURCE: http://www.dailypress.com/business/dp-biz_mortgagerates_0602jun02,0,7031...