Last Call for Cheap Mortgage Rates? – June 25, 2013

For some reason, if you are home owner and had not taken advantage of the record low rates during the last 18 months, your window of procrastination may be closing, very quickly. According to the Primary Mortgage Market survey conducted weekly by Freddie Mac, the June 20, 2013 reading for a 30-year Fixed Rate Mortgage (FRM) averaged 3.93% with 0.8 points (meaning you pay 0.80% of the loan amount to get that interest rate).

No big deal, we are only marginally off the record lows of 3.31% set around November 2012. Except, notice that the reading was taken only one day after our Chief Economist Ben Bernanke also provided us with his periodic riddles on the outlook of our economy, known to most as the FOMC meeting. Not even a week later, most major banks are reporting 30-year FRM rates as high as 4.625%, a nearly 0.70% increase in mortgage rates.

To put things in better perspective, a $300,000 mortgage last week would have cost you approximately $1,420/month versus $1,542/month today, a difference of $122/month for the next 30 years just by waiting a week to have locked in your mortgage rate. For people with tighter constraints on their maximum monthly payments, their purchasing power just reduced by about $22,000.

This extreme volatility reared its ugly head only because Mr. Bernanke strongly hinted that at our current pace of economic improvement, the Fed will stop their monthly $85 billion Quantitative Easing plan. If you take the training wheels off a bike as the child is just getting the hang of riding, the child will inevitable fall of that bike a few times. This spike in rates is our first fall off the bike; I expect more falls to follow.

The silver lining here is that even at 4.625%, interest rates are still very low relative to renting a home right now. According to a Bloomberg report, rates would have to reach over 10% to make renting a better option than owning a home.