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Mortgage rates rise for the week of September 15, 2014

Posted by  on Sep 22, 2014
 

For the second time in the last few months, we have an opportunity to revisit the wisdom of the late, great Harvard economics professor John Kenneth Galbraith: "The only function of economic forecasting is to make astrology look respectable." This time last week, we reported a recent Washington Post feature, which revealed that most of the firms that predict future mortgage rates aren't expecting them "to change much any time soon, and they've adjusted their forecasts to reflect that."

Mortgage rates rising

Just seven days later, the rates for home loans and refinances are now up across the board, according to HSH.com. The average for a 30-year fixed-rate mortgage (FRM) stood at 4.29 percent on Friday, up 8 basis points on the previous week's 4.21 percent. Points for these fell to 0.12 from 0.15. Average rates for 15-year FRMs jumped by the same amount, to 3.56 percent from 3.48 percent, with points holding steady at 0.12.

Adjustable-rate mortgages (ARMs) were, for once, a little less volatile, with 1/1 30-year ARMs showing a rise to 2.73 percent from 2.70 percent, while points inched down to 0.16 from 0.17.

Rate trends for home loans and refinances

Okay, to put this in perspective:

  1. It was as recently as May that the 30-year FRM rate was as high as it was on Friday.
  2. It was only the second consecutive week that there were overall rises. And 14 days' results most certainly do not make a trend.
  3. The rise may have been triggered by a Federal Reserve announcement made this week, at least in part. The Federal Open Market Committee (FOMC) revealed that it plans to halve the value of the mortgage-backed securities it purchases each month, as the start of a tapering process that many hope should see its complete withdrawal from the market. The recent rises may have been an over-reaction to the unveiling of those intentions, and it's possible rates could fall again -- possibly as soon as next week.

But this largely unexpected volatility does demonstrate the extent to which nobody has much of a clue about what's coming and when -- including the expert forecasters Galbraith derided.

If you have grown weary of the stress and brinkmanship involved in continuing to postpone your purchase or refinancing, then don't forget: Our live database of current mortgage rates can help you find the best mortgage rates in your area.

Picking the right FRM for you

If you're buying or refinancing at a point in your life when mortgage payments are easily affordable and your main priority now is securing your long-term financial future, you may be asking yourself the question, Is prepaying a mortgage better than a shorter loan? In other words, should you take a 30-year loan and make higher payments than required whenever you can, or should you lock in higher payments with a 15-year loan?

The 30-year option is certainly more flexible: If money ever gets tight again, you're much less likely to find yourself in trouble.

But three factors make 15-year terms the more desirable choice for those who can be reasonably confident about their financial futures:

  1. 15-year FRM rates are currently much cheaper. Look at this week's numbers: 3.56 percent, compared with 4.29 percent for 30-year terms. That's a 73-basis-point spread! Use our mortgage calculators to work out what that could mean for you.
  2. Some 30-year FRMs have prepayment penalties. You need to make sure yours doesn't if you're going to seriously consider this option.
  3. You stand to be mortgage-free in 15 years! Unless you have iron self-discipline, you may well be tempted with a 30-year term to put your spare disposable income into less financially rewarding indulgences, and so find yourself still paying down your home loan in 20, 25 or 29 years.

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