Mortgage rates inched up this week as investors were warned that the United States may slide into recession in 2013 if Congress doesn't get its act together.
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The benchmark 30-year fixed-rate mortgage rose to 3.91% from 3.86%, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.45 discount and origination points. One year ago, the mortgage index stood at 4.41%; four weeks ago, it was 3.75%.
The benchmark 15-year fixed-rate mortgage rose to 3.12% from 3.05%. The benchmark 5/1 adjustable-rate mortgage fell to 2.9 from 2.93%.
Rates jumped off record lows about a month ago and have been rising since then. The recent spikes serve as a reminder to borrowers that the low rates won't last forever.
"Rates fall like a feather, but they rise like a rocket," says Ed Conarchy, a mortgage planner at Cherry Creek Mortgage in Gurnee, Ill.
Overall, rates have increased about a quarter of a percentage point in recent weeks, says John Walsh, president of Total Mortgage Services in Milford, Conn.
Why Recession Talks Helps Rates
But recession fears should help keep rates somewhat stable for now, mortgage analysts say.
Significant spending cuts and tax increases for millions of Americans are scheduled to go into effect in 2013, as the Bush-era tax cuts expire. The measures would help reduce the country's gigantic deficit, but it would hurt the economy, the Congressional Budget Office says in a report that was released Wednesday. The CBO claims the U.S. economy would likely face a significant recession if Congress doesn't act.
"Several stock market pros, including strategists at Goldman, are recommending that clients slowly exit stocks as the 'fiscal cliff' is quickly approaching, and Congress does not seem to have the willpower to do anything to stop it," says Brett Sinnott, secondary marketing director at CMG Mortgage Group in San Ramon, Calif.
When investors pull money out of riskier investments such as stocks, they seek safer investments such as Treasury and mortgage bonds. That's generally good for mortgage rates.
Fed Won't Let Rates Skyrocket
And there's still a possibility that the Federal Reserve may provide more economic stimulus, which could push rates down. Mere speculation that the Fed may go into another bond-buying spree helped ease the pressure on mortgage rates this week after the minutes from the last Federal Open Market Committee meeting were released Wednesday.
"Many participants expected that such a program could provide additional support for the economic recovery both by putting downward pressure on longer-term interest rates and by contributing to easier financial conditions more broadly," read the FOMC minutes.
But it's too early to tell whether the Fed will act. Better-than-expected economic news, including improvements in home sales and the housing market, have been sending mixed signals to investors and the Fed.
"The Fed continues to confuse the market with half of the voting members calling for more easing and the other half stating it is not needed due to the recent economic data shedding some positive light," Sinnott says.
When in Doubt, Lock
With so much uncertainty, the safest move for borrowers is to lock a rate as soon as it makes financial sense for them, says Walsh.
"I always recommend people to lock," he says. "I have seen rates go up three-eighths of a percentage point in a day and never look back. You will be kicking yourself if you lose the opportunity."
Even with the recent increases, rates remain near historical lows and represent a great opportunity to refinance, especially for those who still have mortgages with rates higher than 5%.
"If you think about it, rates are still well under 4%," Sinnott says. "So 10, 20 and even 30 years from now, the decision to refinance will be a good one, and the difference between 3.5% and 3.875 will almost seem trivial to someone who was debating on when to refinance."