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30-year mortgage rates top 4%

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This year has already been characterized by rising mortgage rates, but how high are they likely to go? Bankrate’s latest survey shows 30-year fixed mortgage rates averaging 4.03 percent this week, and many experts think they’re unlikely to dip much from here.

How are mortgage rates determined?

Before you understand mortgage rate trends, it’s important to know how those rates are set. It’s complicated, but the crucial factors are:

  1. Federal Reserve policy: Although the Fed doesn’t set mortgage rates directly, its policies determine how much it costs banks to borrow money from each other, and that affects interest on mortgages and many other segments of the economy.
  2. Your personal finances: Lenders consider all sorts of things when determining your eligibility to borrow and how much they will charge you for the privilege. You credit score, work history, income and other debts are all factors.
  3. Fees and points: Lenders may adjust your rate to compensate for rolled-in closing costs or points you pay upfront to lower your interest.

Every borrower more or less receives their own unique mortgage rate, and that’s why it’s so important to shop around for the best deal.

Where are rates headed?

Experts agree that rates are likely to keep heading higher, though they’re divided over how high they’ll go and how quickly they’ll get there.

“Another year of strong economic growth combined with the Fed’s tighter policy stance will put upward pressure on rates, and as the Fed reduces its MBS purchases, we also expect some volatility as other investors step into the market but without the steady purchase flow of the Fed,” said Joel Kan, associate vice president of economic and industry forecasting at the Mortgage Bankers Association.

Rates have hit the 4 percent mark sooner than MBA predicted, with a forecast earlier this year suggesting that level wouldn’t be seen until the fourth quarter.

Logan Mohtashami, a housing analyst at HousingWire, said global markets are going to continue influencing mortgage rates in the U.S., so there’s some unpredictability on the horizon.

“The trick is that for rates to stay above 4 percent and higher, we would need global yields to keep heading higher and economic data to stay firm here in the U.S.,” Mohtashami said. He expects German and Japanese bonds to play a particularly important role in the market’s future trends.

Why many recent borrowers saw 4% mortgage rates already

“Rates vary among lenders and not every lender is charging the same price, so it is very important to shop around,” said Greg McBride, Bankrate’s chief financial analyst. “Hearing ‘mortgage rates are 4 percent’ doesn’t necessarily mean you can’t find or get approved for a rate below 4 percent, but you need to shop around to do it.”

Most sub-4 percent mortgages today charge points, and borrowers with lower credit may already struggle to get a loan in the 3 percent range as things currently stand.

Bottom line

The days of sub-3 percent rates are certainly behind us now, but it’s possible to find a good deal on a mortgage if you put in the time to shop around. In the coming months, however, 4 percent interest is likely to be much more common in the mortgage market. And that in fact is a rate that compares quite favorably in historical  terms.

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Written by
Zach Wichter
Mortgage reporter
Zach Wichter is a former mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy.