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Rates Still Creeping Up. Should You Worry?

mortgage rates

 Mortgage rates have been on a steady rise over the past year or two. As the economy began to recover and prices were on the increase, the Fed has stepped in several times to adjust the Federal Funds rate. This rate is the one that banks charge one another for overnight lending. Banks are supposed to have a sufficient amount of cash on hand to meet consumer demand. If the bank sees its reserves aren’t going to cut it, they need to borrow some money from other Federal Reserve banks. 

If you’ve been following mortgage rates lately, maybe you’re getting ready to buy a home or maybe you need to refinance out of your adjustable or hybrid note into a fixed, you’re probably paying attention. What many are seeing is not exactly what they want to see. The Fed’s been busy. But it’s not at all a dire situation. Here’s what I mean.

The national median home value as of earlier this month is right around $400,000 or so. The prevalent 30 year mortgage rate was also around 6.125%. (Your mileage may vary) If mortgage rates increase by another 0.25%, the difference in monthly payment is around $95 bucks. While nothing to sneeze at for sure, it’s typically not a deal killer. That is unless your debt ratios are already pushing the limit, which in that case it might. But as with any mortgage program, it’s always your option to pay a discount point to lower the rate a bit. One discount point is equal to 1% of the amount borrowed. 

In this example, the discount point would be $4,000. But there are other options as well that your loan officer can review with you. You might find a comfortable payment by just paying one-half a point, or again in this example, $2,000.

Should you pay any discount points? I’ve never been a big fan of paying points upfront to lower the rate. The math rarely works out but again, your loan officer can help guide  you. The decision to pay any points at all is entirely up to you. The lender doesn’t care one way or the other. The lender could get some mortgage interest upfront in the form of a discount  point or collect the interest over the life of the loan. Or some combination thereof.

The overall ‘point’ about all of this is to not freak out when rates make a 0.25% jump. Rates don’t appear to be falling anytime soon so if you’re in the position to lock in your rate, it might be time to have a discussion with your loan officer.