mortgage

Mortgage rates fall, but Fed raises new questions

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Mortgage rates drifted downward in a week in which minutes of the most recent Fed meeting loomed large.

The Federal Reserve dropped the week's biggest bit of economic news when it released the minutes of its most recent monetary policy meeting. It seemed to hint that the Fed could increase short-term interest rates as early as its next meeting, in mid-March.

"In discussing the outlook for monetary policy over the period ahead, many participants expressed the view that it might be appropriate to raise the Federal funds rate again fairly soon" if employment and inflation continue to rise, the Fed minutes said.

That implies that the central bank remains on track to raise the short-term Federal funds rate three times this year, as it forecast in December. Fed rate hikes don't always lead to higher mortgage rates. But this time around, the consensus among economists and investors is that Fed rate increases will be accompanied by rising mortgage rates.

Bankrate's benchmark mortgage rate survey is conducted on Wednesdays, and the data had been collected by the time the Fed minutes were released Wednesday afternoon.

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Mortgage rates this week

The benchmark 30-year fixed-rate mortgage fell this week to 4.29 percent from 4.35 percent, according to Bankrate's weekly survey of large lenders. A year ago, it was 3.80 percent. Four weeks ago, the rate was 4.32 percent. The 30-year fixed-rate average for this week is 0.06 percentage points below the 52-week high of 4.35 percent, and is 0.77 percentage points greater than the 52-week low of 3.52 percent.

The 30-year fixed mortgages in this week's survey had an average total of 0.29 discount and origination points.

Over the past 52 weeks, the 30-year fixed has averaged 3.84 percent. This week's rate is 0.45 percentage points higher than the 52-week average.

  • The benchmark 15-year fixed-rate mortgage fell to 3.48 percent from 3.51 percent.
  • The benchmark 5/1 adjustable-rate mortgage fell to 3.45 percent from 3.51 percent.
  • The benchmark 30-year fixed-rate jumbo mortgage fell to 4.28 percent from 4.34 percent.

At the current 30-year fixed rate, you'll pay $494.28 for every $100,000 you borrow, down from $497.81 last week.

At the current 15-year fixed rate, you'll pay $713.90 for every $100,000 you borrow, down from $715.37 last week.

At the current 5/1 ARM rate, you'll pay $446.26 for every $100,000 you borrow, down from $449.60 last week.

Weekly national mortgage survey

Results of Bankrate.com's weekly national survey of large lenders conducted February 22, 2017 and the effect on monthly payments for a $165,000 loan:

30-year fixed15-year fixed5-year ARM
This week's rate:4.29%3.48%3.45%
Change from last week:-0.06-0.03-0.06
Monthly payment:$815.57$1,177.94$736.33
Change from last week:-$5.82-2.43-$5.52

Lock or not?

It's not a sure thing that the Fed will hike short-term rates in mid-March. But what if it does?

"You typically tend to see a bit of an increase" in mortgage interest rates in the short term, says Jim Sahnger, mortgage planner for Schaffer Mortgage, in Palm Beach Gardens, Florida. "But long term, what we've normally seen in the face of rate hikes is that it typically calms things down and we see a bit of a decline."

Sahnger believes mortgage rates will remain consistent through spring, within a quarter of a percentage point higher or lower than where they are now. Still, because of uncertainty about government spending priorities, he recommends locking your mortgage rate if you are scheduled to close within a month. Locking a rate gives you one less thing to worry about.

Fed's path is uncertain

Jonathan Smoke, chief economist for Realtor.com, says the Fed's minutes didn't necessary telegraph a rate hike next month.

He points to the markets for 10-year Treasuries and mortgage bonds: Neither market had a strong reaction to the Fed's minutes, meaning that investors weren't surprised or alarmed by what they read.

"I think that reinforces the view that while there is a possibility of a Fed rate increase in March, it's more likely in May or June," Smoke says.

He adds that the central bank probably wants more certainty on the government's spending policies, which are unclear right now.

Curt Long, chief economist for the National Association of Federally-Insured Credit Unions, sees uncertainty from the central bank, too.

"The minutes from the FOMC's most recent meeting were typically noncommittal," he says. "There was plenty to chew on for both hawks and doves, and with some significant data releases due before the committee's next meeting, it is likely that the committee itself is unsure about which direction it is leaning."

Long believes it's more likely that the Fed will hold steady in March and raise the federal funds rate when it meets in early May or mid-June.

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