Mortgage rates rise on fears over inflation

Mortgage rates rise

The average on a 30-year fixed was about 5% a decade ago compared with nearly 7% a decade earlier

The average interest on a 30-year fixed-rate mortgage jumped to 3.04% on Monday, according to Bankrate – up from 2.86% a week ago.

Mortgage rates are loosely tied to the yield, or interest, on the 10-year Treasury note, said Bankrate analyst Greg McBride. That yield has been rising in recent weeks over concerns that stronger economic growth, fuelled by COVID vaccines and more US fiscal stimulus, will lead to inflation.

From a bond investor’s perspective, inflation is their worst enemy, because it erodes the value of those fixed payments that a bond holder receives over time, McBride said. Bond investors demand higher yields to compensate for that.

Mortgage rates are still historically low.

Even if they were 3.5, even if they were 3.8, that’s still very low, said Nicole Ward, a mortgage broker with White Oak Financial in Atlanta.

The average on a 30-year fixed was about 5% a decade ago compared with nearly 7% a decade earlier.

The Federal Reserve has some sway over mortgage rates, too. The central bank has been buying Treasury and mortgage bonds to help keep rates low and hasn’t signalled any plans to pull back, said Karissa McDonough, fixed income strategist at People’s United Advisors.

They recognize that housing has been a significant contributor to economic recovery, and the last thing though they want to do is to choke that off, she said.

In the meantime, even the slight uptick has some existing homeowners scrambling to refinance.

Borrowers are calling their broker saying, ‘Hey, you know, I’m hearing in the news that rates are going up, you know, what can you do for me, or is it too late?’, said Delfino Aguilar, senior vice president of wholesale production at Kind Lending.

But while a rise in rates may slow down refinance, brokers say it’s not enough to dampen demand for new mortgages in a hot housing market.

From what I hear, the purchase business is booming all over the country, Ward said. There’s a shortage of inventory, and people are fighting over homes.

Disclaimer: The opinions expressed by our writers are their own and do not represent the views of Getting Money Wise. The information provided on Getting Money Wise is intended for informational purposes only. Getting Money Wise is not liable for any financial losses incurred. Conduct your own research by contacting financial experts before making any investment decisions.

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