Mortgage rates change direction, head back up

BY ADRIAN D. GARCIA/BANKRATE.COM

Several key mortgage rates trended upward this week. The average rates on 30-year fixed and 15-year fixed mortgages both climbed higher. On the variable-mortgage side, the average rate on 5/1 adjustable-rate mortgages also climbed higher.

The average rate you’ll pay for a 30-year fixed mortgage is 3.75 percent, up 4 basis points over the last seven days. A month ago, the average rate on a 30-year fixed mortgage was higher, at 3.86 percent.

At the current average rate, you’ll pay principal and interest of $463.12 for every $100,000 you borrow. That’s $2.27 higher compared with last week.

The average 15-year fixed-mortgage rate is 3.11 percent, up 1 basis point over the last seven days.

Monthly payments on a 15-year fixed mortgage at that rate will cost around $696 per $100,000 borrowed. That’s clearly much higher than the monthly payment would be on a 30-year mortgage at that rate, but it comes with some big advantages: You’ll save thousands of dollars over the life of the loan in total interest paid and build equity much more rapidly.

The average rate on a 5/1 ARM is 3.90 percent, adding 7 basis points from a week ago.

These types of loans are best for those who expect to sell or refinance before the first or second adjustment. Rates could be substantially higher when the loan first adjusts, and thereafter.

Monthly payments on a 5/1 ARM at 3.90 percent would cost about $472 for each $100,000 borrowed over the initial five years, but could climb hundreds of dollars higher afterward, depending on the loan’s terms.

Michael Cox, founding director and executive-in-residence of the O’Neil Center for Global Markets and a former chief economist at the Dallas Federal Reserve Bank, said, “Rates will rise slightly this week. By pushing the Fed to lower the funds rate even lower - 100 basis points being the number floating around. Trump is starting to create a financial market concern that the Fed will be obliged to increase money growth to a higher rate.

“In my opinion, the market is starting to build into long term T-bond rates now, a small increase in inflationary expectations, thus raising long term rates a tad. As goes the 30-year T-bond rate, so go 30-year mortgage rates.”

Dick Lepre, a senior loan officer at RPM Mortgage, sees rates going down. He says, “Tech techs are bullish (higher prices, lower yields), so let’s go with the techs and not worry about the Treasury/mortgage disconnect. Why is everyone buying U.S. Treasury debt? Simple answer is that the economies of most of the EU, China and South America are having serious issues. There is $16 trillion of negative yield debt out there. That makes a U.S Treasury at 1.5 percent look like a winning Lotto ticket. The shape of the yield curve is saying more about what’s happening elsewhere. Business investment is declining because business is more exposed to world malaise than it the U.S. consumer.

Mitch Ohlbaum, President of Macoy Capital Partners, is among the 64 percent of experts who see rates staying the same. He said, “Rates will be unchanged in the coming week. With the 10-year Treasury trading at 1.56 percent, down just 3 basis points from last week, and with all the news of the recent week factored in, I do not expect to see much change over the next few weeks. There will be some movement between 1.50 percent and 1.56 percent, but the market would be hard pressed to fall below the 1.50-percent mark without taking a big hit. Unemployment continues to remain steady, so, again, do not expect much movement in rates over the next two to three weeks. It’s still a good time to refinance your mortgage.”

Jim Sahnger, a mortgage planner at C2 Financial Corporation, adds, “Since the beginning of the month, the 10-year Treasury dropped from just over 2.00 percent to an intraday low of 1.47 percent on the 15th. This kind of movement is incredible in just a few weeks; and rates have climbed back up a bit as the buying frenzy has tapered. For those that think mortgage rates should rise and fall in tandem with Treasuries, they typically move in the same direction but do not always move in lock step. Look for rates in the short-term to stay range-bound near the best rates of the last several years.”