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Mortgage rates spiked up in the last two days, here’s an excerpt from Adam at MND:

Tensions remain high in the primary mortgage market as mortgage rates have extended their losing streak.  We’re in a tough spot here…

The best conventional/FHA/VA 30 year fixed mortgage rates have risen into the 4.25% to 4.50% range for well-qualified borrowers.  The best conventional/FHA/VA  15 year fixed mortgage rates have risen into a range between 3.500% and 3.875%.

This liquidation of long trading positions is a necessary evil in the recovery process. That cleansing process was once again evident today in the bond market and it might continue to play out over the next few days, but once it’s washed out, I think we’ll at least see 4.25% no cost loans on the board again. When that occurs we’ll revisit the notion of mortgage rates moving back below 4.00% again…until then we’re stuck in a waiting game…

What’s the difference?  Here are the P&I payments for a 30-year mortgage:

Rate $500,000 $697,500
4.0% $2,387.08 $3,329.97
4.5% $2,533.43 $3,534.13
5.0% $2,684.11 $3,744.33

Regardless of the situation, homebuyers always have the option to buy down their interest rate – and the seller can contribute too.  But if you think that you can comfortably afford your mortgage payment at 4%, but the thought of 5% is unaffordable, you should re-evaluate your house-buying plans.  Homeownership is expensive – there are repairs, improvements, utilities, furniture, etc. to consider, and if a couple of hundred dollars per month can make or break you, then proceed with extreme caution.

Will home prices come down if rates go up? Only with regards to the long-term trend. Sellers are already extremely resistant to lowering their price, and if you find the perfect house, don’t be surprised if the competition from other buyers erodes your ability to get a discount.

 

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