Mortgage rates could rise earlier than expected


Yesterday the minutes to the December 13, 2012 FOMC Meeting were released catching many off guard revealing the Fed may pull back on the purchase of mortgage backed securities earlier than originally planned.

Here are some bits from the minutes related to mortgage rates:

“While almost all members thought that the asset purchase program begun in September had been effective and supportive of growth, they also generally saw that the benefits of ongoing purchases were uncertain and that the potential costs could rise as the size of the balance sheet increased…

Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet.”

Noting that “several others” of the FOMC are considering to pull back or stop buying mortgage backed securities prior to the end of 2013 caused a major sell off in the bond markets yesterday following the release of the minutes.

Mortgage rates have been at artificially low rates largely due to the Fed’s participation in buying mortgage backed securities (MBS). Should the Fed cease purchasing MBS and treasury securities, many anticipate that “real” mortgage rates would be closer to what we see in the jumbo or non-conforming markets. Currently jumbo rates are at least full point  in rate higher than conforming mortgage rates based on a 30 year fixed.

Here’s an example of current rates as of January 4, 2013 at 9:30 am: 

Conforming 30 year fixed: 3.500% (apr 3.589)

High Balance Conforming 30 year fixed: 3.875% (apr 3.932)

Jumbo 30 year fixed: 4.875% (apr 4.947)

All quotes above are based on rate-term refinances with credit scores of 740 or higher and a loan to value of 80% with reserves included in the mortgage payment. In the greater Seattle area (King, Pierce and Snohomish Counties), the conforming high balance loan limit is $506,000. Loan amounts above $506,000 are considered “jumbo/non-conforming”.

Home owners and home buyers have become very accustomed and perhaps lackadaisical about our low mortgage rates. There is nothing wrong with a 4.875% conforming rate…but it’s not going to seem as appealing when you could of had a point lower.

If you have been considering buying or refinancing your home and benefiting from today’s low rates, I recommend doing so soon. 

If your home is located anywhere in Washington state, where I am licensed to originate mortgages, I am happy to help you!


  1. Nice going. Not much national news reporting on this. I plan to quote your findings in a story for Erate on their mortgage rate story page.

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