mortgage

Mortgage rates skyrocket

Mortgage rates skyrocketed this week.

The benchmark 30-year fixed-rate mortgage soared 12 basis points this week, to 5.23 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.4 discount and origination points. One year ago, the mortgage index was 5.13 percent; four weeks ago, it was 5.12 percent.

The benchmark 15-year fixed-rate mortgage rose 6 basis points, to 4.53 percent. The benchmark 5/1 adjustable-rate mortgage climbed 2 basis points, to 4.51 percent.

Credit mystery

Where did all the home sales go?

That question has been on the minds of many mortgage professionals. The expansion of the federal homebuyer tax credit last fall has failed to produce the expected surge of home purchases thus far.

Instead, sales of new homes have fallen for four straight months, while existing home sales have declined in each of the past three months.

But reports suggest sales activity recently has picked up in some markets. If true, the uptick is occurring just in the nick of time. Homebuyers must have a home under contract by April 30 to qualify for the tax break.

Weekly national mortgage survey
Results of Bankrate.com's March 31, 2010, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
30-year fixed15-year fixed5-year ARM
This week's rate:5.23%4.53%4.51%
Change from last week:+0.12+0.06+0.02
Monthly payment:$909.09$1,264.77$837.01
Change from last week:+$12.21+$5.06+$1.96

Mortgage professionals on the ground offer mixed reports of the credit's impact in their markets. Dick Lepre, senior loan officer at Residential Pacific Mortgage in San Francisco, says the tax credit's lure has waned since last fall.

"From what I see, the tax credit has had little effect on purchases in the past five months," Lepre says. "The effects of this program largely occurred last year."

Over in Holland, Mich., interest in purchasing a new home has grown to a pace that is "very exciting," according to David Kuiper, mortgage planner at First Place Bank. However, Kuiper says the challenge of trying to close a loan in today's tightfisted lending environment has "elevated stress levels and dampened enthusiasm."

"We have not seen an influx of first-time buyers," Kuiper says. "We've been holding steady at higher than normal volumes all spring, and have not seen a spike in new applications."

Dan Green, a loan officer at Waterstone Mortgage in Cincinnati, sees hints that the expansion of the credit beyond first-time buyers finally is paying off.

"Homes at higher price points are starting to move," says Green, who also writes TheMortgageReports.com. "I suspect this is the result of move-up buyers."

Jim Sahnger, mortgage consultant for Palm Beach Financial Network in Stuart, Fla., also sees sales picking up for homes in the more expensive $300,000 to $650,000 range, "which is encouraging."

The Fed withdraws

This week, the Federal Reserve ended a nearly 15-month-long, $1.25 trillion campaign of buying up mortgage-backed securities. The program's goal was to reduce borrowing costs for homebuyers.

The Fed's efforts appear to have paid off. When the Fed announced its campaign in November 2008, the average 30-year fixed-rate mortgage stood at 6.33 percent, according to Bankrate's weekly survey of mortgage rates.

Rates have fallen steadily ever since, hovering near historic lows for many months. Now that the Federal Reserve is suspending its purchases, what will happen to mortgage rates?

Green expects rates to rise throughout the summer as "(economic) growth fans the inflationary fire." Sahnger says domestic and international concerns about U.S. debt levels are likely to push long-term interest rates -- including mortgage rates -- higher over time.

Lepre says his "best guess" is that rates will rise a half-percent in the wake of the Fed's absence, while Kuiper makes a similar forecast.

"Rates definitely will be higher, likely in the mid to high 5 percent range," Kuiper says. "The markets have known this is coming for a long time now, so it comes as no surprise."

Regardless of where rates go, Green and Kuiper agree that the housing market is unlikely to regain full momentum until the nation's employment picture improves.

"When people have jobs and are confident of future employment, they make large buying decisions" more readily, Kuiper says.

If you're in the market for a mortgage or refinance, you can look for the best interest rate by searching Bankrate's rate tables.

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