Monday, December 9, 2013

Mortgage Rates Increase on Recent Jobs Report

By Mike Dulla, President

Thinking about buying that second home or perhaps purchasing your first? You may want to pull the trigger soon on locking in an interest rate. Artificially low interest rates created by the Fed stimulus program known as Quantitative Easing, or QE, may be coming to an end after the recent bit of good news about the economy.

The jobs report released by the Labor Department yesterday showed that the nation’s employers added 203,000 jobs and the unemployment rate fell to 7%, which is the lowest since November 2008. That means the economy has averaged over 200,000 new jobs a month for the last four months. That may be the jobs sustainability level the Fed needs to start reducing the $85 billion in mortgage bonds and treasuries they currently purchase every month. These asset purchases keep rates artificially low and once these bond purchases are reduced or eliminated, mortgage rates will undoubtedly increase.

Keep in mind that every 1% increase in interest rates by about 10%. So the payment for a $400,000 loan at 4.0% is about the same as the payment for a $360,000 loan at 5.0%. Coupled with possible continued home price increases due to an improving job market and overall economy, today still remains one of the best buying opportunities of a lifetime.

Rates for 30 year fixed mortgage loans had never fallen below 5% in the 42 year history of the Freddie Mac Primary Mortgage Market survey until the Fed started QE. So the question is – where will rates go when QE finally ends? And, if you were in the market for a home, did you buy one before rates went up?

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