Mortgage interest rates continue uphill climb

Mortgage rates increased a week after the Federal Reserve reduced the amount of money it pours into the economy to lower interest rates and ahead of a new year that comes with new mortgage rules.

The benchmark 30-year fixed-rate mortgage rose to 4.63 percent from 4.58 percent the previous week, according to the Bankrate.com national survey of large lenders.

The mortgages in this week’s survey had an average total of 0.41 discount and origination points. One year ago, that rate stood at 3.59 percent. Four weeks ago, it was 4.44 percent.

The benchmark 15-year fixed-rate mortgage increased to 3.70 percent from 3.63 percent last week, and the benchmark 5/1 adjustable-rate mortgage rose to 3.43 percent from 3.33 percent.

The benchmark 30-year fixed-rate jumbo rose to 4.67 percent from 4.60 percent.

This is the highest rate for the 30-year fixed in more than three months. From mid-August to mid-September, the rate was in a range of 4.62 percent to 4.74 percent, then fell. Rates began rising again in early November.

The Fed aftermath

This week’s increase comes after the central bank this past week cut the amount of mortgage-backed securities and Treasuries it buys each month by $10 billion, to $75 billion.

Known as quantitative easing, this strategy is designed to maintain low interest rates on consumer and business loans, including mortgages. The Fed began its third round of easing in September to help jump-start the economy.

The rise in mortgage rates, which are tied to the yield on the 10-year Treasury bond, remained mild, says Paul Edelstein, director of financial economics for IHS Global Insight.

“The markets knew (a reduction) was coming and that it was coming soon,” he says. “The fact that it was $10 billion versus $15 billion also took a little of the edge off.”

New federal rules

Impending federal rules also have helped to push up mortgage rates recently and will continue to do so into the first quarter.

A new regulation from the Consumer Financial Protection Bureau will restrict how fees and points can be charged. It goes into effect Jan. 10, and lenders are already repricing mortgages in anticipation.

New rules from the Federal Housing Finance Agency will increase the fee Fannie Mae and Freddie Mac charge lenders to guarantee home loans, starting in March. This cost likely will be passed on to consumers in the form of higher interest rates.

What does 2014 have in store

Mortgage rates likely will rise throughout next year, but Edelstein expects a gradual increase. He’s forecasting rates to add about a quarter point over the course of the year. The next big move-up in rates won’t happen until the second half of 2015 when the Fed gets close to increasing the fed funds rate, a key benchmark rate, Edelstein says.

Still, mortgage rates remain attractively low, even if they don’t return to the near-historic lows seen earlier this year, says John Stearns, a mortgage banker for American Fidelity Mortgage Services in Mequon, Wis.

“We’re not going to be at 3.25 percent again; people just need to get over that,” he says. “But last week, I came across a customer who had a 5.5 percent mortgage rate, so refinancing at 4.5 percent made sense for him. There are still opportunities out there.”