Mortgages rise, pushed by possibility of Fed rate increase

Mortgage rates rose this week after the Federal Reserve again signaled that it might raise the federal funds rate in mid-June.

Lenders reacted to the growing speculation that there will be another Fed rate hike, says Mathew Carson, senior loan officer for First Capital Group, a San Francisco mortgage financing company.

“The markets are building it in, like they usually do, a little earlier on the anticipation of what the Fed is going to do,” Carson says.

The Fed doesn’t directly set the mortgage rates homeowners pay, but the federal funds rate is closely watched as an indicator of overall market rates, including those for mortgages.

Mortgage rates this week

■ The benchmark 30-year fixed-rate mortgage rose to 3.82 percent from 3.76 percent. A year ago, it was 4 percent. Four weeks ago, the rate was 3.83 percent. The mortgages in this week’s survey had an average total of 0.2 discount and origination points. Over the past 52 weeks, the 30-year fixed has averaged 3.98 percent. This week’s rate is 0.16 percentage points lower than the 52-week average.

■ The benchmark 15-year fixed-rate mortgage broke the 3 percent barrier, rising to 3.06 percent from 2.98 percent.

■ The benchmark 5/1 adjustable-rate mortgage rose to 3.23 percent from 3.18 percent.

■ The benchmark 30-year fixed-rate jumbo mortgage rose to 3.84 percent from 3.78 percent.

Plenty of wiggle room

Despite the strong signals, the Fed’s intentions are never certain until it acts — or doesn’t.

Here’s what the central bank actually said in the recently released minutes from the latest meeting of its Federal Open Market Committee April 26-27:

“Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor market conditions continuing to strengthen and inflation making progress toward the Committee’s 2 percent objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June.”

There’s plenty of wiggle-room in that “if” and “likely” would be appropriate.”

If the Fed doesn’t act, Carson says, rates could “tick back downwards.”

There are other risk factors in the market including China’s slowing economy and a referendum in the United Kingdom over whether to exit the eurozone.

“The American economy, all in all, seems to be holding up pretty well, so I think the Fed is anxious to bump rates up,” Carson says.

Buyers should lock

Buyers who are within two or three weeks of closing should probably lock a rate to protect themselves from the possibility of more upward rate movement.

“Waiting is a bit of a dangerous game,” Carson suggests. “And you don’t really have that option if you’re purchasing because you’re beholden to your contract and the timeline set out in that contract.”

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