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Mortgage Rate ReportSaturday, June 23, 2018
Mortgage rates dipped slightly this week after rising in response to the Federal Reserve's decision to raise interest rates at its June meeting last week. In its statement, the Fed pointed to a robust labor market, improving household spending, sustained business investment and accelerating inflation to support a 0.250% increase in the target Fed Funds rate to 1.750% to 2.000%. The Fed's removal of measured language from its statement as well as highly positive comments on the economy by Fed Chair Jerome Powell also improved the probability of two more increases rate moves this year and in 2019 as well.
Although June's quarter point rate surprised few, there were mixed opinions prior to the meeting over the number of increases to expect for the remainder of 2018, with moderate wage growth, lower than targeted inflation and potential international trade wars providing rationale for the Fed to pause or slow future rate hikes. Following meeting, however, there is greater certainty regarding the Fed's apporach for the second half of 2018.
While the increase in interest rates and the Fed's more hawkish outlook drove mortgage rates higher across the board last week, in good news for borrowers, we saw rates pullback for several programs this week. It appears that by effectively telegraphing its intentions, the Fed brought increased stability to the mortgage market, which positively impacted rates for certain programs.
The mortgage rate for a 30 year fixed rate loan slid 0.125% higher to 4.375% while the rate for a 15 year fixed rate mortgage remained at 3.875%. The interest rate on a 5/1 adjustable rate mortgage (ARM) was also steady at 3.875%. FHA mortgage rates stayed put at 3.875%, matching VA mortgage rates which held at 3.875%, with both programs remaining attractive to borrowers focused on low or no down payment programs, especially first time home buyers. Jumbo mortgage rates were stable 4.500% while non-owner occupied mortgage rates moved 0.125% lower to 4.625%.
Although the Fed's move to raise rates was widely expected, the mortgage market reaction to the news was better than expected. Rates increased less than expected initially and dropped slightly this week. We have seen rates gradually move higher this year in response to the Fed's forecast and expectations for future rate hikes were reinforced this week. While interest rates are impossible to predict, prospective borrowers looking to buy a home or refinance their mortgage may be able to lock in a lower rate by acting sooner rather than later. As lenders react differently to shifting market conditions, we have also seen the variation in mortgage rate pricing grow recently, which means borrowers benefit more by shopping multiple lenders.
Because rates fluctuate constantly, we continue to actively monitor the market for new developments. Borrowers should check the FREEandCLEAR mortgage rate tables regularly to review personalized, updated mortgage rates for lenders in their area. Our rate tables are free to use and require no personal information.
Why Select an Adjustable Rate Mortgage
Lower Initial Rate.
Adjustable rate mortgage rates are typically lower than the interest rate on a 30 year fixed rate mortgage, at least initially. Borrowers benefit from the lower ARM mortgage rate, sometimes called a “teaser” rate, for the first 3, 5, 7 or 10 years of the loan, depending on what type of ARM you select. After this initial period, which is also called the fixed rate period, the interest rate is subject to change and possibly increase. Borrowers who know they are only going to own their home for a set period of time are able to take advantage of the lower ARM rates, without being exposed to the risk that their interest rate increases in the future.
Lower Monthly Payment.
Lower adjustable rate mortgage rates mean a lower monthly payment for borrowers. A lower monthly mortgage payment provides additional financial flexibility for borrowers and makes owning a home more affordable, at least during the initial fixed rate period of the loan. The flip side of an adjustable rate mortgage is that your monthly payment can potentially increase in the future if interest rates go up. Borrowers need to make sure that they can afford their monthly payment both at the beginning of the mortgage, when the interest rate is lower, and over time if their payment goes up.
Larger Mortgage Amount.
The initial teaser ARM mortgage rate and monthly payment enable borrowers to afford a larger mortgage amount and potentially buy more home. Being able to qualify for a larger mortgage amount is one of the main attractions of an adjustable rate mortgage. The downside of being able to afford a larger loan amount with an adjustable rate mortgage is that you lose the certainty that comes with a fixed rate mortgage, where the interest rate remains the same over the life of the mortgage.
You Think Interest Rates Will Go Down.
The interest rate for an adjustable rate mortgage is subject to change after a fixed period of time, usually the first 3, 5, 7 or 10 years of the mortgage. The period of the loan when the interest rate can change is called the adjustable rate period and lasts until the end of the loan term, which is usually 30 years. If you think interest rates will decline in the future then an adjustable rate mortgage may be a good option. Because if interest rates go down during the adjustable rate period of your loan, your monthly payment will decrease which is great for borrowers. Please note that predicting interest rates is highly challenging so this approach can expose you to significant risk.
Why Borrowers Compare Adjustable Rate Mortgage Rates on FREEandCLEAR
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More FREEandCLEAR Mortgage Resources
Use our Adjustable Rate Mortgage Calculator to calculate the initial monthly payment and worst case scenario for an ARM based on today’s interest rates
Understand the ins and outs of an adjustable rate mortgage (ARM) including key loan terminology and how they work
Adjustable rate mortgages involve more risk than other types of mortgages. Be sure to understand the downsides of an ARM so you can make an informed decision when you select your mortgage
Got a question about an adjustable rate mortgage (or any mortgage topic)? Ask the FREEandCLEAR Mortgage Expert and receive an informative response within 24 hours