Iceberg Ahead! Home Buyers Rush to Lock in Rates as Fed Increase is Near

Two weeks ago, mortgage application submissions for home purchases surged 8% – the largest weekly jump since September. As mortgage rates reach pandemic-highs, home buyers are eager to get a move on their purchases before the run up in rates.

But are they too late and why are mortgage rates rising?

In December, the Federal Reserve announced its plan to speed up its asset tapering process. Since then, mortgage rates have seen a rapid increase in the first few weeks into the new year -- and likely going to continue to trend upward for the remainder of the year.

With the Fed kicking off its tapering process in March and potentially a few times more in 2022, the benchmark interest rate will start rising sooner; although the benchmark interest rate does not directly set mortgage rates, it does tend to guide their trends.

So right now, “the broader bond market (which dictates interest rates) is in the midst of an adjustment process in response to a shift from the Fed,” writes Matthew Graham of Mortgage News Daily. “Between now and [March], the traders who share this realization [that the Fed will soon lift the benchmark] will be making trades that drive rates gradually higher.”

How are home buyers reacting and, more importantly, how does that affect your plans of purchasing a home?

Many home buyers fear that historically-low mortgage rates are on their way out. Therefore, they’re jumping at the chance to lock in rates before they rise more. “We were going to wait [to buy] until the spring, and we decided to push it up because of interest rates,” said Katie Severance, author of “The Brilliant Homebuyer: 101 Tips for Buying a Home in the New Economy.” “The rule of thumb is that for every one-point increase in mortgage rates, your buying power goes down almost 10 percent.”

So What does this mean and What to do next?

• Check your credit history?– Your credit score is one of the biggest factors that lenders evaluate. Double checking your credit history can ensure that no mistakes were made that could hurt your score. There are also other?easy ways to boost your credit fast.
• Get preapproved?– A letter of preapproval is key to making an offer in a busy market. It shows the seller that you are serious about your offer and can finance the home.
• Explore low down payment options?– As home prices rise, down payments become more expensive so using a low down payment to leverage your purchasing power even if rates are creeping up.
• Consider delayed financing –?All-cash offers are generally seen as more competitive. With delayed financing, you can make an all cash offer upfront and pay it off later.
• Consider buying points or negotiating seller concessions –?As mortgage rates rise, points will become a big asset. By buying points upfront (or using seller credits to do so), you can reduce your interest rate and therefore your future monthly payments.

If you’ve been debating when to make a move on your purchase or refinance, now might be the time.

Ralph Tapia is a Mortgage Loan Officer located in Houston, Texas.

I left the Oil and Gas Industry after 11 years before deciding to get my Mortgage Originator License and go full time. If you need home financing or have questions about home financing, I'm just a phone call away.

RALPH TAPIA?| Sales Manager & Mortgage Loan Originator NMLS# 1420289 9811 Katy Freeway Suite 1025 Houston, TX 77024 C: 281.881.0612 [email protected]

Want to Get the Process started? APPLY here: https://www.cmgfi.com/mysite/ralph-tapia

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?Sources:?Bankrate,?CNBC,?MBA,?MBA,?Mortgage News Daily CMG Blog Post