Counting Down to "The Deadline"

Mortgage Rates: Moving Up

Everyone in the housing business seems to be counting down to the approaching deadline with baited breath.

No, not April 30, when the home buyer tax credits expire.

March 31, when the Federal Reserve stops buying mortgages and mortgage-backed securities -- reportedly, anywhere from $10 to $25 billion, per week, since at least last Fall.

Those purchases act like a huge subsidy, keeping rates down and the mortgage securities market liquid.

The Fed Exits

How big a subsidy?

We're about to find out.

No doubt anticipating the Fed's exit, interest rates have been rising this week; just this Wednesday, according to Edina Mortgage's Lala Brosz, rates on jumbo mortgage re-set four times, from around 5.25% at the beginning of the day, to 5.5% at the end.

The potential updraft in mortgage rates makes it more imperative that prospective Buyers lock in good rates while they're still low (vs. float, in the hopes that they'll drift down).

It may also be a good time to inquire about whether your lender offers a re-lock option, which can be cheap insurance in an environment of rising rates.

Effect(s) of Rate Jump

Didn't Lock? Wait, and Hope for the Best

Nice piece exploring the potential fallout from this week's dramatic spike in mortgage rates (Potential Consequences of 5.5% Mortgage Rates).

Although I think it's premature to entertain all the negative consequences -- after all, it's possible that rates may drop as quickly as they popped -- the post does a nice job of explaining how the mortgage market works.

In particular, if you didn't already know, lots of folks with pending re-fi(nance) and mortgage applications opt to "float" (vs. lock) their rates. So, when rates jump dramatically, these same applicants face either sharply higher borrowing costs, or, in many cases, no longer qualify for their loans. Neither is good news for the housing market, or broader economy.

On the other hand, anything that boosts anemic interest rates arguably helps millions of savers currently earning next to nothing on their liquid cash.

So what do you do if you're one of the people with a mortgage application pending, or who's contemplating refinancing?

Two thoughts: 1) the move in rates has been so huge, you'd naturally expect at least some retracement (in the stock market, it's common for a big move to be followed by a partial reversal); and 2) if your lender offers a "re-lock" option at a reasonable cost . . . get it.

Especially when rates are so volatile, getting a "second bite at the apple" is a good idea.

P.S.: the "why" of the mortgage rate spike is at least as significant as the "what." At the moment, there appear to be two, competing narratives: one camp holds that higher rates are a sign of a strengthening economy; the other, that massive federal borrowing is causing the bond market to demand higher returns. In fact, they're probably both true . . .