Mortgage

Mortgage charges rise to over three%. Are the document charges gone for good?

Prices exceed 3% for the first time since June

According to Freddie Mac, 30-year mortgage rates stayed in the 2% range through most of 2021.

But this week it rose above 3% for the first time since June.

Other rate hikes this year have been followed by major slumps. But these new, higher rates could stay here.

As the economy recovers and the Fed is about to withdraw its stimulus measures, there are strong forces driving interest rates higher.

Borrowers who thought record lows were the new norm should reassess. Today's prices could be the lowest we've seen in a while.

Find your lowest interest rate before they go up. Start here (09/30/2021)

Higher Prices Are Here – To Stay?

Most economists and mortgage experts have been forecasting higher interest rates since the beginning of the year.

With immunization widespread, business and travel reopening, and rising consumer confidence, our economic outlook looked bright. And a better economy should lead to higher interest rates.

We even saw a false start in March and April when rates climbed to 3.18% – their highs for the year.

Source: Freddie Mac

But then the Delta variant struck, and it wasn't clear how things would play out for the financial markets. So the prices were lowered again.

Now it looks like the long awaited “higher interest rates” are finally materializing.

Why are mortgage rates rising?

There are several reasons for the rise in mortgage rates this week.

The Federal Reserve

First, the Federal Reserve has announced that it will "soon" begin pulling back on pandemic-era fiscal policies. That means probably before the end of the year.

Since the beginning of the Covid pandemic, the Fed has kept mortgage rates artificially low by injecting billions of dollars into the mortgage market every month.

Interest rates would always go up if the Fed stopped this program.

Now the Fed has a clearer roadmap for curbing its mortgage incentives. And investors (who ultimately determine mortgage rates) are already pricing in those changes. So interest rates are rising even though the Fed has not officially made any changes.

The Debt Limit Debate

Second, there is an increasingly frightening debate in Congress about the debt ceiling.

“Much of the rise (in mortgage rates) is due to concerns that the US will be essentially out of cash by October 18 if the debt ceiling is not lifted, which both Treasury Secretary Yellen and Fed Chairman Powell reiterated yesterday mortgage commentator Rob Chrisman stated in his September 30 comment.

If Congress can't agree to raise that ceiling, the US could default on its debt, which has never been done before.

This would likely result in at least a mild recession, as well as higher mortgage and other forms of borrowing rates.

Find your lowest interest rate before they go up. Start here (09/30/2021)

Will prices continue to rise?

Earlier interest rate spikes this year were followed by dramatic declines. But this new surge could be the start of a longer uptrend.

Ultimately, interest rates rise because the economy improves.

Although Covid is not gone – far from it – we are all finding a "new normal". And it doesn't look like we're going back the other way anytime soon.

As Chrisman said, "Despite the challenges posed by the recent surge in COVID cases, COVID fears do not appear to be generating the economic headwinds that they faced when the pandemic began."

However, we may see a jagged path up – with some spikes and some falls – rather than a steady march.

If Congress finds a solution to the debt ceiling problem, as we all hope, we could see a temporary break from these rate hikes.

Overall, however, rates are likely to continue to rise once the economy recovers. Borrowers should therefore not expect sustained declines in the near future.

A potential bright spot for home buyers

Rising interest rates are usually not good news for homeowners. But there could be a silver lining for homebuyers if interest rates keep rising.

Freddie Mac's chief economist Sam Khater stated:

"We expect mortgage rates to continue to rise slightly, which is likely to affect home prices so that they will weaken slightly after the rise last year."

Even a modest drop in home prices could be welcome news for buyers who are fighting an uphill battle in today's red-hot market.

Be aware, however, that your price will also affect your home purchase budget. So, if you have exhausted the amount you can borrow, even a slight increase in interest rates can potentially get you out of the home you want.

Don't miss the low price window

Interest rate movements can be almost impossible to predict – especially in today's bizarre and “unprecedented” economy.

For now, however, it looks much more likely that rates will continue to rise through the year-end instead of falling back to the 2 and staying there.

If you've been waiting for a refinance or tied your home purchase budget to today's low interest rates, now is a good time to get serious about mortgage lockdown.

Confirm your new plan (September 30, 2021)

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