The survey found that the 30-year fixed-rate mortgage averaged 4.61 percent for the week ending April 5, 2018 – up from 4.44 percent the week prior. This is the highest rate since April 2014 and marks a significant jump over the last few weeks.
The increase in rates is being attributed to a tight job market and economic growth, which has sparked fears of inflation. As inflation rises, so too do interest rates, making it more expensive for borrowers to secure a mortgage. It is also likely due to the Federal Reserve’s decision to raise its benchmark short-term interest rate, which influences other borrowing costs.
The main types of mortgages affected by the current rate increase are the 15-year fixed-rate mortgage, which increased to 4.08 percent from 3.99 percent; and the 5/1 adjustable rate mortgage (ARM), which increased to 4.22 percent from 4.10 percent.
These rate increases have been accompanied by a decrease in mortgage applications. According to the Mortgage Bankers Association (MBA), applications for home purchases dropped 9% for the week ending April 6. Refinance applications also declined, falling 7% for the same period. Despite the dip in applications, demand for mortgage financing remains very strong overall.
The current rise in rates affects every type of mortgage borrower differently. Homebuyers taking out a 30-year mortgage will experience significantly higher monthly payments due to the rate hike. Those with adjustable-rate mortgages may not see an immediate effect, as their rates may remain unchanged or lower. However, if the general trend of rising rates continues, ARM borrowers could see their rates increase.
Overall, the rate increases have caused an uptick in demand for fixed-rate mortgages, which offer a more consistent monthly payment and greater certainty for the life of the loan. However, this comes at a cost, as fixed-rate mortgages typically carry higher rates than adjustable-rate mortgages.
In summary, current mortgage rates have jumped to their highest levels in four years, due to a tight labor market and economic growth that is increasing inflation and driving up rates. This increase has had an effect on all types of mortgages, with 15-year fixed-rate mortgages rising to 4.08 percent and 5/1 adjustable rate mortgages (ARM) rising to 4.22 percent. Furthermore, the increase in rates has had an effect on mortgage applications, with both home purchase and refinance applications declining. Borrowers are reacting to the rate increase by opting for more traditional fixed-rate mortgages, even though these loans come with a higher rate than adjustable-rate mortgages. Ultimately, the rate increases mean that borrowers will be paying more for the privilege of taking out a mortgage.
This article was contributed on Oct 29, 2023
