Mortgage rates have jumped significantly since Wednesday afternoon -- thanks to Federal Reserve Chairman Ben Bernanke.
If you were quoted a mortgage rate earlier this week, or even yesterday morning, you may be surprised by bad news when you try to lock in your rate today.
Rates jumped by as much as half a percentage point overnight on some loans, says Michael Becker, a mortgage banker at WCS Funding in Baltimore.
"I preapproved some first-time homebuyers yesterday -- they were putting in an offer last night (Wednesday)," Becker says. "Their rate on an FHA mortgage was 3.75 percent yesterday morning; today (Thursday) the rate is 4.25 percent. That's a huge one-day move."
For these buyers, the jump means an extra $50 on the monthly payment for their $166,000 loan.
Why rates are going up again
Just as rates started to retreat after six consecutive weeks of increases, Bernanke spooked investors again with talk of slowing the bond-purchasing program that has helped keep rates low for so long.
The Fed has been spending $85 billion a month to purchase mortgage bonds and long-term Treasury notes to keep rates low and boost the economy. On Wednesday, the Fed decided to continue with the bond purchases, according to a statement released after a two-day meeting of the policymaking Federal Open Market Committee.
That announcement should have calmed the markets and bolstered mortgage rates. But after the statement was released, Bernanke ruined the party for borrowers. He told reporters during a news conference that the Fed could start to trim the bond purchases this year and end the program by mid-2014 if the economy continues to improve.
Financial markets went wild after his comment. Investors pulled money out of the bond market, and the yields on mortgage bonds and Treasury notes spiked. Mortgage rates tend to follow the same direction as those yields.
The markets may be overreacting, and there's still hope that rates will adjust back to the levels seen before Bernanke spoke, Becker says. But if your refinance or purchase loan makes sense today, don't bet on lower rates that may not come tomorrow.
"I think we may see a pullback in rates, but it may take a while for that to happen," he says.
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