Mortgage rates have jumped this week to their highest levels since
July 2011, causing frustration among homebuyers and refinancers who were caught
by surprise.
According to the Bankrate.com national survey of large lenders,
the benchmark 30-year fixed-rate mortgage rose to 4.61 percent, compared with
4.12 percent last week. One year ago, that rate stood at 3.89 percent. Four
weeks ago, it was 3.99 percent. Additionally, the rate on the 30-year fixed was
3.6 percent on May 8 - a jump of more than a percentage point in just seven
weeks.
The 30-year fixed hasn't been this high since Bankrate's survey on
July 27, 2011, when the mortgage rate averaged 4.74%. This is the largest
one-week rise since the financial crisis of October 2008.The benchmark 15-year fixed-rate mortgage rose to 3.73% this week,
compared with 3.3% last week. The benchmark 5/1 adjustable-rate mortgage rose
to 3.45% from 2.99%. The benchmark 30-year fixed-rate jumbo mortgage rose to
4.75% from 4.29%.
Rates started climbing slowly in mid-May on speculation that the
Federal Reserve was preparing to trim the $85 billion-per-month bond purchase
program that has long kept a lid on rates. When the Federal Open Market
Committee wrapped up its meeting last week, many observers expected the Fed to
calm the markets. Instead, the Fed did the opposite by announcing plans to
taper the bond purchase program. Chairman Ben Bernanke told reporters that the
Fed plans to slow the bond purchases this year and end the program in mid-2014,
as long as the economy continues to improve.
The stock market sank on Bernanke's comments, and a wave of
investors immediately pulled money out of the bond market. When there's less
demand for mortgage and Treasury bonds, mortgage rates tend to rise. Should
borrowers lock or wait?
By historic standards, rates are still low so homeowners and
prospective buyers have some tough decisions to make. The opportunity to
refinance may not be as appealing and many homeowners may wan to wait for the
markets to calm if they think refinancing now wouldn't save them much. But anyone
still paying 6 percent or higher on their loans shouldn't still consider the
savings of refinancing. Prospective homebuyers may want to wait for a drop in
rates, but run the risk of losing out on an ideal property if they wait it out.
Many homebuyers who were expecting to pay 3.5%
in interest on their 30-year mortgages and are now faced with higher rates,
have chosen a 10-year ARM loan to keep the monthly payments close to their
expectations. With a 10-year adjustable-rate mortgage, the rate is fixed for
the first 10 years and resets after that. The average rate for a 10/1 ARM was
4% in Bankrate's weekly survey.