Mortgage Rates Dramatically Increase

Today mortgage rates jumped about 0.25-0.375 in interest rate or about a full point (1% of the loan amount) in fee. Mortgage rates have been trending higher since the beginning of this year. Today’s movement with mortgage rates is a pretty significant increase for one day.

The is largely due to Federal Reserve Governor Brainard stating today that they are going to start rapidly liquidating their balance sheets as well as being more aggressive with increasing the federal funds rate. Combine this with inflation and mortgage rates will continue to push higher.

If you are currently preapproved for a mortgage, it is crucial that you contact your mortgage professional to make sure that your preapproval status has not changed. Preapprovals are actually based on the total mortgage payment and are limited to a percentage of your monthly gross income (less your debts).

For example, just using round numbers, if you qualify for a principal and interest payment of $1,000, the loan amount varies based on interest rate.

  • Interest rate: 3.000% = Loan amount: $237,200
  • Interest rate: 4.000% = Loan amount: $209,500
  • Interest rate: 5.000% = Loan amount: $186,300
  • Interest rate: 6.000% = Loan amount: $166,800

This is based on a principal and interest payment of $1,000 with a 30 year fixed rate mortgage. As you can see, when interest rates rise, affordability is impacted.

Even if your preapproval letter has an expiration date weeks from today, the letter should reference what payment you’re preapproved for and not just the sales price and loan amount. Regardless of the language on the letter, if you are preapproved, I urge you to contact your mortgage professional. You may need to update your preapproval and come up with a new game plan.

If you are in process with a lender to buy or refinance your home, contact them to make sure that your interest rate is locked and that you will close on time. You may also want to review what the rate lock extension policies and fees are. In an environment where interest rates are rising, there will be fees to extend the interest rate lock should it be required. Some investors are increasing the cost to extend an interest rate lock and fees to extend vary with lenders/investors.

If you are a Real Estate Agent, you may want to check on your preapproved home buyers to make sure they check with their lenders for the reasons I mentioned above. If your have transactions in progress, you might consider checking with the mortgage professional to verify the loans have adequate lock periods.

If you have a home equity line of credit, credit cards or car loans (or any loan) that is tied to the Prime Rate, you may want to look at refinancing them or paying them off. The Prime Rate follows the Fed Funds rate and it appears that rate will be increased at a more rapid pace than originally anticipated. I’m happy to review your scenario with you to see if refinancing or a fixed rate second mortgage pencils out for your personal scenario for your Washington state home.

Rates go up and they go down. Unfortunately, they do tend to go up a lot faster than down.

I’ve been writing for a long time about how the Fed has been keeping rates “artificially sweet” and we knew the day would come when they would have to pull back.  We are actually returning to what would be a more normal interest rate EXCEPT it’s going to be higher due to inflation, which causes bonds (like mortgage backed securities) to deteriorate.

As always, if you’re considering buying or refinancing a home or are interested in a second mortgage for your home located anywhere in Washington state, I am happy to help you. 

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