Coping with rising - yes, rising! - mortgage rates

Posted by  on Aug 16, 2012

A strange thing happened in early August: Mortgage rates rose for two consecutive weeks. While hardly a convincing reversal of the sustained trend toward lower rates in recent years, it could be an important wake-up call to anyone who has been hesitating to pull the trigger on a home purchase or refinancing decision.

The psychology of winning streaks

Everybody loves a winning streak. And the longer one continues, the more people believe it will never end. (Remember the boom in housing prices, for instance?) The reality is that streaks not only end, but often the longer they move in one direction, the further they snap back in the opposite direction.

Recent developments

According to Freddie Mac, 30-year mortgage rates bottomed out at 3.49 percent as of July 26. They then rose to 3.55 percent in the week ending August 2, and to 3.59 percent in the week ending August 9. This is the first time since March that mortgage rates rose for two consecutive weeks. It's too early to call it a turnaround, but it is a reminder that a turnaround will occur at some point.

Action steps to take

If you have been close to buying a house or refinancing but have been waiting to see just how low rates would go, the recent uptick in rates should prompt you to do two things:

  1. Run the numbers at today's mortgage rates. Confirm whether you could still afford your intended purchase, or if refinancing still makes sense. Chances are the numbers still work, since rates haven't risen that much yet. Assuming that is the case, think seriously about pulling the trigger while the numbers still work for you.

  2. Figure out your rate ceiling. If you insist on waiting -- hoping for another leg down in mortgage rates -- figure out how high rates would have to be before you could no longer afford your intended purchase or refinance. By establishing your rate ceiling, you can monitor current mortgage rates with an eye toward acting if they start to approach your target.

The fact that two weeks of rising interest rates is noteworthy demonstrates how truly extraordinary this mortgage rate environment has been. And the fact that this environment has been so extraordinary is the very reason it should not be taken for granted.

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