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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
Phil
June 22, 2013 at 10:19 am

Really . Does anyone expect the free money to last forever. I remember when rates were 6% and that seemed cheap. Get a grip.

Independent Thinker
June 22, 2013 at 9:35 am

The Bond Market, of which mortgage rates are tied to, is finally moving back toward historical norms. These artificially low rates that we have been enjoying over the last few years could not last much longer. In a world where we are not monetizing our own debt, worldwide bond investors set the rate.

WM
June 21, 2013 at 8:07 pm

Once we became divided we become defeated.

meem
June 21, 2013 at 7:25 pm

Americans, don't fool yourselves,It was never good in this country, and it won't be better also. With the way they treat the whole world,no guarantee they'll treat their own citizens better.Sorry,but that the way it's gonna be from now.

skoog
June 21, 2013 at 6:46 pm

The government needs to stop manipulating the economy and let everything correct itself back to normal. The interest rates we've been seeing are not normal and no one making any money on savings is not normal. It will make a lot of people angry for a while, but will make things better in the long run. Stop whining. When we bought our 1st house in the 80's interest rates were 13-16%. Now that's pretty high.

Jim
June 21, 2013 at 5:51 pm

We will NOT see the economy of our country get better during this current generation. So sad, but true. Too many know-it-alls making too many moronic decisions.

Dom
June 21, 2013 at 5:36 pm

Michael, I would go one step further, because the Fed action did not warant the rise in rates or the panic on Wall St.: Banks used the EXCUSE of the Fed action to raise the rates they charge you for mortgages.

Valeri
June 21, 2013 at 5:02 pm

He needs to stay in his office and shut up. The American people are having it hard enough without the FEDS opening their mouths again. Stock market is down, interest rates go up!!! What are they getting paid for????

Thomas
June 21, 2013 at 4:36 pm

Every time he opens his mouth something bad happens.

The bankers are just plain greedy.

Michael
June 21, 2013 at 4:29 pm

This should read, as a result of the Fed action,BANKS raised the interest rate that they are charging you for mortgages. Please take responsibility for the mortgage bankers part of the equation.

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