Mortgage rates dip on Fed uncertainty

Mortgage rates dipped this week after a Federal Reserve meeting failed to clear up when the central bank will begin increasing short-term interest rates.

30 year fixed rate mortgage – 3 month trend
  • The benchmark 30-year fixed-rate mortgage fell to 4.3 percent from 4.33 percent last week, according to the national survey of large lenders. One year ago, that rate was 4.47 percent. Four weeks ago, it was 4.23 percent. The mortgages in this week's survey had an average total of 0.25 discount and origination points.
  • The benchmark 15-year fixed-rate mortgage remained at 3.46 percent.
  • The benchmark 5/1 adjustable-rate mortgage fell to 3.32 percent from 3.35 percent.
  • The benchmark 30-year fixed-rate jumbo fell to 4.31 percent from 4.37 percent.

Weekly national mortgage survey

Results of's Sept. 24, 2014, 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:4.33.463.32
Change from last week:-0.03N/C-0.03
Monthly payment:$816.54$1,176.32$724.44
Change from last week:-$2.91N/C-$2.74

"I think we're going to be in this 'up a little and down a little' for a while," says Pava Leyrer, manager of training and development for Northern Mortgage Services in Grandville, Michigan.

The quiet response to the Fed

Last week, the Federal Reserve's monetary policymaking arm, the Federal Open Market Committee, again reduced its third round of asset purchases, known as quantitative easing, or QE3, by $10 billion in monthly Treasury and mortgage bond purchases. The FOMC created the program to help stimulate the economy by keeping interest rates low, and it's expected to complete QE3 altogether by its October meeting.

Featured Rates

What the Fed didn't do was give a clear sign of when it will start raising its federal funds rate, which benchmarks interest rates on consumer and business loans. Economists and investors predict that the hikes will occur sometime next year, but there's no more precise consensus than that.

Rates aren't behaving as expected

"The expectation is that the economy is doing better and we're getting closer to the time when the Fed starts raising short-term rates -- and that means rates should be rising," says Paul Edelstein, director of financial economics for IHS Economics. "But we're nine months in and rates have been moving sideways fairly consistently for the past six to nine months."

Mortgage refinancing plunges

As rates oscillate, mortgage lending continues to slow down. A report on Monday from the Federal Financial Institutions Examinations Council found that mortgage originations decreased by 11 percent in 2013 from the previous year, due largely to fewer refinances as rates increased from historic lows reached at the end of 2012. Purchase volume, the group found, was up.

More current, the number of mortgage applications this week fell 4.1 percent from the previous week, according to the Mortgage Bankers Association on Sept. 24. Refinance volume dropped 7 percent, while purchase applications decreased 0.3 percent.

Purchase mortgages mosey ahead

"Most people who could refinance have done it by this time," says David Cary, a mortgage broker with C2 Financial Corp. in Sausalito, California. "Where there has been a pickup is in purchases. It's still not a robust volume, but it's stronger than it was."

A report from the Commerce Department on Sept. 24 backed that up. Sales of new homes jumped 18 percent in August to the highest level in six years. It also marked the largest month-over-month increase since 1992.

How to play the rates?

Rates will bounce around where they are and possibly rise over the coming weeks, but not by much. No one is expecting rates to breach 5 percent or even bump up near that level, unless something dramatic happens on the global stage.

Still, the common recommendation for consumers is to lock a rate if they get one they like, just in case the unlikely occurs. Leyrer also suggests shopping around because even an eighth of a point can make a difference to some borrowers.

"If a rate is too high, there will always be a lender who will be more moderate," she says. "If it's too low, you'd better look for the trap door. Or, at least get the rate in writing."


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