Mortgage rates see biggest spike in more than three years

Mortgage rates took a significant one-week jump following Donald Trump’s victory in the Nov. 8 presidential election.

The benchmark 30-year fixed-rate mortgage rose this week to 4.01 percent from 3.73 percent, according to Bankrate’s weekly survey of large lenders. It was the biggest one-week increase in more than three years and the 20th largest one-week increase in the 31-year history of Bankrate’s weekly mortgage survey.

Mortgage advice

“I’m telling people to lock” their rates, says Elizabeth Rose, branch manager for Movement Mortgage, in Dallas. “If I was in the process of buying a home right now, I would not roll the dice. Let’s face it, rates are still unbelievably awesome. So lock your rate and be happy with it.”

Awesome? Be happy with it? That’s a difficult message to hear if you’re a first-time homebuyer or you never got a mortgage before 2010. For those of us with long memories, 4 percent is an excellent mortgage rate:

■ Until May 2010, a 30-year fixed mortgage rate below 5 percent was unheard of, unless the borrower aggressively paid discount points.

(OK, “unheard of” is an overstatement. Remember when Elvis appeared on the Ed Sullivan Show for the first time, in the fall of 1956? If so, you recall the last time — until May 2010 — when people were getting mortgages for under 5 percent.)

■ Twenty years ago people were happy getting 7.5 percent.

■ This week 30 years ago, the average rate on the 30-year fixed was 10 percent.

Mortgage rates this week

A year ago the 30-year fixed-rate mortgage was 4.09 percent. Four weeks ago the rate was 3.64 percent. Over the past 52 weeks the 30-year fixed has averaged 3.78 percent.

This week’s rate is 0.23 percentage points higher than the 52-week average. The 30-year fixed mortgages in this week’s survey had an average total of 0.24 discount and origination points.

Mortgage rates don’t often rise this quickly. The most recent big jump happened almost 3½ years ago, when the benchmark mortgage rate went up 0.49 of a percentage point in a week. That increase was a result of the so-called taper tantrum, in which bond investors threw a fit after the Federal Reserve announced that it would reduce, or taper, its pace of bond purchases that were holding interest rates artificially low.

The last time the 30-year fixed was higher than today’s 4.01 was Jan. 13, when it stood at 4.05 percent.

■ The benchmark 15-year fixed-rate mortgage rose to 3.21 percent from 2.97 percent.

■ The benchmark 5/1 adjustable-rate mortgage rose to 3.39 percent from 3.15 percent.

■ The benchmark 30-year fixed-rate jumbo mortgage rose to 4.01 percent from 3.73 percent.

What should you do now?

This rapid rise blows a lot of mortgage refinances out of the water, says Rose of Movement Mortgage.

On the other hand, there are still plenty of homeowners who have mortgages with high rates who could still benefit from refinancing. One of the first steps is to determine the break-even point — that is, how long it would take the monthly savings to recoup the closing costs.

“If I was holding a mortgage anything over 6 percent, I would be asking someone to do the analysis for me to see what’s my break-even point, how much money could I save,” Rose says.

The same goes for homeowners with adjustable-rate mortgages, she adds.

Mortgage investors react

“People have to be conscious of the fact that they were spoiled for a long time,” says Michael Chadwick, a financial adviser for Chadwick Financial Advisors. “Four percent for long-term money is not a bad deal at all.”

Chadwick calls this rapid rise in rates “an emotional knee-jerk reaction” to the presidential election by bond investors.

He doesn’t think the overall market reaction — including higher bond yields and falling commodity prices — makes sense. At the very least, he says, the bond market’s reaction is based on incomplete information.

Among the unknowns: Trump’s fiscal priorities.

There’s a belief the Federal Reserve will become more aggressive about raising short-term interest rates, but no one knows for sure. And even when the Fed does raise short-term rates, that doesn’t mean mortgage rates will move in the same direction.