Mortgage interest rates are going up. In the week that ended June 6, the 30 year fixed rate mortgage read 3.91 percent to register its fifth week in a row of gains. This was according to Freddie Mac as the mortgage rate reached its highest level in a year.
The rate was 18 percent higher than the 3.31 percent record low reached in November of 2012. It was also near 17 percent higher than the 3.35 percent rate at the start of May. The 15 year fixed rate was also above 3 percent at 3.03 percent.
Compared to the previous month, the increase in mortgage rate means an extra $30 a month for every $100,000 of debt. If the rates continue their upward trend, then mortgages would be more expensive. People are now asking whether the increased mortgage rates could derail the momentum of the housing recovery.
The mortgage rates today are still relatively low compared to the rates in the previous decades. It was due to the stimulus plan implemented by the Federal Reserve known as the third round of quantitative easing or QE3. It was designed to bolster the recovery in housing and the economy.
Through the QE3, the Fed has been purchasing $85 billion worth of Treasury bonds and mortgage backed securities each month. It resulted to low interest rates and make mortgages more attractive to consumers.
The low rates gave qualified home buyers access to cheap financing. It helped improve a surge in both home sales and price increases. Lower rates make it possible for bigger principals.
The rates are increasing because of stronger economic data and speculations that Fed chairman Ben Bernanke might reduce the stimulus program in the next couple of months. This made investors sell their 10 year Treasury positions that drove yield for the bonds over 2 percent.