Mortgage Rates Increase

The trending tide towards decreasing mortgage rates has turned, with May seeing an increase. Mortgage rates were at an all time low in November 2012, which made homebuyers scurry to take advantage of low 3.31-percent rates. With the 30-year-rate being only 3.35-percent the first week of May, interest rates have surged and are closing at 3.81-percent at the end of May. Thirty-year rates weren’t the only ones to increase, as 15-year loans saw an increase of 0.21-percent, rounding out at 2.98-percent.

Experts are quick to blame the striking interest rate increase on Federal Reserve Chairman Bernanke, as his recent press announcements left many investors with the impression that the government may cease their stimulus policies as early as September. As investors rushed to adjust their financial positions in the market, it ultimately raised interest rates.

The stimulus program was designed by the government, allowing them to purchase up to $85 billion in mortgage-backed securities per month. This has helped maintain lower interest rates, but once the government begins pulling back on purchasing these loans, buyers will begin to demand higher interest-rate yields to help balance the market, which ultimately increases interest rates.

Bond yields are, in fact, increasing more than mortgage rates. At the end of May the 10-year Treasury closed at a whopping 2.12-percent, an increase of 0.45 points when compared to April. This alone implies that mortgage rates will have no choice but to catch up.

As rates increase, the number of homeowners that are refinancing will continue to, and has already begun to decline. In fact, refinance applications fell a staggering 12-percent in May when the interest rates increased, making it the largest drop this year.

There is no fear that the ticking interest rates will detour buyers from purchasing a home. Rates would have to increase a substantial amount before it would have an impact on homebuyers. May’s rate increases only amounts to an additional $20 per month per every $100,000 borrowed, meaning that for a $200,000 home, the homebuyer would only pay an additional $40 a month. As interest rates increase into the 5- and 6-percent ranges, this will dampen homebuyers’ financial abilities.

For homebuyers that are not eligible for traditional home loans, Better Than Loans offers a solution: hard money loans. A hard money lender is able to offer fast loan funding for commercial building loans and apartment building loans, making these types of loans ideal for investors that are looking to flip properties. Property flips are an essential part to the housing recovery, as it keeps flippers in business while generating additional housing availability on the market. With home availability in the U.S. decreasing 13.6-percent, investors are a vital component to the real estate market recovery.