Mortgage Rates Reach Highest Mark In A Year

Home buyers who finance their homes are likely to be hit hard by the fact that mortgage rates have reached a new high in a year.

Freddie Mac reveals that the mortgage rate on 30 year fixed mortgage has shot up to 3.81%, a 0.22 per cent point jump. It’s about 15% higher than the lowest rate of 3.31% that was seen in the week of November 21, 2012. In early May the rate was about 3.35% but now it’s inched closer to record high of 3.83% observed in the week of May 10, 2012.

There’s been a 0.21% hike in the 15 year fixed loan, which now stands at 2.98%. Keith Gumbinger, vice president of believes that Bernanke might have some explaining to do on the matter.

Gumbinger explains that the statements made by Gumbinger led people to believe that Feds policies could start to pull back from as early as September. “That fostered a spike in interest rates as investors scrambled to adjust their positions, he adds.

The interest rates have been kept low by the stimulus program where the Feds buy $85 billion a month in the form of mortgage backed securities. But as the talk of pull back on these buys from Feds was given wind, interest rates spiked because ordinary buyers will demand higher yield.

In fact Bond yields have gone up faster than mortgage rates. In May the 10 year old treasury closed at 2.12%, which is a .045% rise from the level in late April. It indicates that mortgage rates won’t be left far behind.

One fallout of the rates going up is that loan refinancing gets turned down because there will be less savings for homeowners. According to Mortgage Bankers Association, Refi applications dropped by a drastic 12% week over week.

However to have an impact on the buyers the rates will have to increase a lot more. So far on $100,000 borrowed, the increase has been about $20. It’s something buyers can cope with but over time the increasing rates will mean they face serious hurdles while bidding on homes and it will make a dent on the increase of home prices.