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Mortgage Rates Soar Hitting Its Highest in 2 Years

28 June 2013

The U.S. mortgage rates experienced a sudden jump, increasing the current costs of buying a home.

The rates have soared from their near-record lows with 30-year average fixed mortgages reaching 4.46 percent, according to Freddie Mac. The increase is the highest on the said mortgage in two years.

The increase was brought about by the slow down on bond purchases by the Fed. Continues pullback is likely to push mortgage rates even higher.

However, the short-run effect of the jump is causing buyers to consider entering the market before rates get even higher. Although the rates are still low in historical standards, future homebuyers would prefer to zero-in on their new home now before prices jump in the future. Eventually, the increase in rates would likely to slow down the price increase and slow down the surge in purchases in the recent months.

The rate on 30-year loan increased to 4.46 this week from 3.93 percent last week. This was its biggest jump in 26 years.

As a result, those who were granted a 3.35 percent loan in May on a $200,000 mortgage would have $881 monthly payment while buyers who received a 4.46 percent rate are seeing a $1,008 payment per month. The difference can immediately stack up if taxes, down payments and insurance are considered.

The rate is coupled by increasing home prices due to an inventory crutch in several markets across the country. While builders are continuously replenishing the supply to answer the surge in demand, it cannot mitigate the pace of home price increase.

Another effect of the increase was seen in refinance loans. In the past, lower rates encouraged refinancing and lenders saw quite a lucrative market. However, with the sudden increase in loans, a drop in refi applications is expected. This would be a likely advantage to many buyers as lenders are still trying to adjust to the increase and will likely to loosen their tight requirements to attract more borrowers on the alternative.

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