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Rates spike again after short reprieve

By Polyana da Costa · Bankrate.com
Thursday, June 20, 2013
Posted: 4 pm ET

Mortgage rates have jumped significantly since Wednesday afternoon -- thanks to Federal Reserve Chairman Ben Bernanke.

Federal Reserve Chairman Ben Bernanke

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.

Follow me on Twitter: @Polyanad.

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24 Comments
Terry
June 25, 2013 at 11:23 am

Completely uncalled for Nick. Sure you are correct about the margins being the same, but Mike is correct in placing his anger with the banking system in general. The facts are: taxpayers finance banks by loaning them money through the government for free or for a small amount. Then the banks lend it back to taxpayers with a profit margin. This is the non-sense way are economy works. It is logical if the goal is to keep the government and banks in business - which is our goal. We need the banks in this system. Still, the irony is not lost on intelligent people! You truly have to be stupid not to see the irony in a capitalist economy. However, these systems also serve a greater purpose.

Brian
June 24, 2013 at 4:46 pm

Hey can someone tell me if a streamline refinance rates are usually alittle higher than other loans? Like 4.8 apr and 5.1 interest? That's what I was quoted

Bill
June 24, 2013 at 3:20 pm

Hey Nick, good job! Completely called for! Most likely Mike is a 99%er and his extent of knowledge.

Eddie Malvin
June 24, 2013 at 8:34 am

While I don't agree with Nick's delivery, he's spot on about banks, interest rates and the cost of funds. It seems that a basic understanding of markets along with a healthy dose of financial literacy would save people a lot of misdirected anger and frustration.

Andy
June 23, 2013 at 2:56 pm

Hey Nick, chill out. Completely uncalled for.

Nick
June 22, 2013 at 6:25 pm

Michael,

You are extremely ignorant. The rise in interest rates has nothing to do with mortgage bankers or banks raising interest rates so they can charge more. You are a moron. The treasury yields raised substantially causing a sharp hit to Mortgage Backed Securities. The banks are making the same amount that they were before rates went up... The cost of the funds for the lenders went up, so u are an idiot. The banks are making the exact same margin

Go read a book... Jump off a cliff or something because u r ignorant

Mike
June 22, 2013 at 11:12 am

Way to go banks. Get the money at no interest but raise the rates just like the oil companies raise gas prices. Reason: Just because they can. Watch the small housing comeback go bust again. At least I already refinanced last year.