Rising Mortgage Rates on the Horizon
published on 06/06/2014
If you are contemplating buying a home, now might be a good time, as interest rates are expected to rise in the near future.
The Good News is that mortgage rates are still sitting at all-time lows. In April, the average 30-year rate was 4.20% and the average 15-year rate was at 3.29%, according to Freddie Mac’s website. Even though these rates are up slightly from last year, they’re still lower than average dating from 2011 back to 1971.
With that said, rates are expected to climb above 5.00% in 2014, according to the Mortgage Bankers Association (MBA).
“We expect mortgage rates will increase above 5.00% this year and then increase further to 5.50% by the end of 2015,” said Jay Brinkmann, MBA’s Chief Economist and Senior Vice President for Research and Education, in a recent press release.
Why the hike in rates? Two factors affecting mortgage rates are our economy and the Federal Reserve.
The state of our economy is looking upward. In general, investors on Wall Street like profitable investments and are willing to take risks for higher returns on their investments. Mortgage-backed securities are “safe” investments with low returns. With the stock at all-time highs and a positive outlook as we climb out of the recession, investors are leaning away from “safe” investments.
The Federal Reserve is slowly stepping away from purchasing mortgage bonds. During the past few years, the U.S. Government has been buying all the mortgage bonds to keep rates low in an effort to stimulate the economy. Recently, Federal Reserve Chairman Janet Yellen announced that the U.S. Government will slowly ease off buying the bonds, initiating private investors to step in and buy the rest. As stated above, low yielding bonds are not appetizing for investors, and thus we’ll begin to see rates increase to appeal to investors.
What does this mean to you?
Personally, I would not advise making a hasty decision to purchase a home if it’s not the right time for you to buy. An increase rate to 5.00% isn’t that bad when you compare it to historical high’s, like 1981’s 14.00% mortgage rate.
The difference in your monthly payment with a rate increase of 0.75% is about $45 per month, per $100,000 financed (assuming 30-year terms).
Your monthly payment can add up quickly, but it’s not worth the mistake of buying the wrong home.
Don’t let the rising mortgage rates scare you into buying. The right time to buy is when you find the right home, in the right location, where you can spend multiple years.
I’m happy to answer any questions you might have about mortgages rates or buying a home, even if you are not an RCB Bank customer. You can reach me by phone at 405-608-5291, or email at firstname.lastname@example.org.
Opinions expressed above are the personal opinions of Kenneth Wohl, and meant for generic illustration purposes only. For specific questions regarding your personal lending needs, please call us at 855-BANK-RCB. Member FDIC and Equal Housing Lender. RCB Bank NMLS #798151.