Mortgage Rates on the Rise
With mortgage rates decreasing steadily for a number of years, May saw a turnaround, with mortgage rates increasing. Mortgage rates saw an all time low in November 2012, making homebuyers scurry to quickly take advantage of rates that were hovering near 3.31-percent. Thirty-year mortgage rates were 3.35-percent at the beginning of May, surging to 3.81-percent at the end of May. These rates weren’t the only ones that were subject to increases, as 15-year loans increased by 0.21-percent, coming in at 2.98-percent.
Experts blame the interest rate increases on Federal Reserve Chairman Bernanke. His recent press announcements have left many investors on edge, giving them the impression that the federal government may consider pulling their stimulus funding in September. Investors suddenly rushed, adjusting their financial positions, which ultimately caused an increase in interest rates.
The stimulus program was designed by congress and the federal government to help provide financial aid to fledgling banks. This program allowed the government to purchase $85 billion per month in mortgage-backed securities. This program has helped sustain lower interest rates for several years, but experts predict that once the government stops funding this program, buyers will see higher interest rates. The higher rates are largely in response to the demand for higher interest-rate yields, which are designed to help balance the market.
The bond yields are increasing more than mortgage rates. At the end of May, the standard 10-year Treasury closed at 2.12-percent, which was an increase of 0.45 points from the previous month. This implies that mortgage rates have no choice but to eventually catch up.
As the rates increase, the number of homeowners that are considering refinancing will decline. Records show that refinance applications fell 12-percent in May, in direct response to interest rates increasing.
There is no immediate fear that an increase in interest rates will detour buyers. Experts say that interest rates would have to see a substantial increase in order to impact homebuyers. The latest interest rate increase only equates to $20 per month based on every $100,000 that is financed. This means that on a $200,000 home, homebuyers would only pay an extra $40 a month. As interest rates are anticipated to increase, this will ultimately decrease buyers’ buying powers.
With banking regulations tightening, many homebuyers are finding that they do not qualify for traditional home loans. My Hard Money Lenders offers a valuable solution: hard money loans. As a hard money lender, they are able to offer flexible loans, especially those geared towards commercial building loans and apartment building loans. Keeping property flippers in the real estate market is a valuable component of a successful housing recovery.