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Why Are Mortgage Rates Are Rising?

WHY ARE MORTGAGE RATES RISING?

Many factors go into determining mortgage rates, but generally, rates tend to track the ups and downs of 10-year Treasury bond yields. When bonds sell-off, interest rates rise. A sharp sell-off in bonds this week pushed the yield on the 10-year Treasury note to 3.093 percent at the close of trading Wednesday — the highest level it’s been in seven years. Stronger than expected retail sales data, along with strong earnings from Macy’s, may have fueled the week’s bond sell-off.

The interest rate on 30-year fixed mortgages continued to drift further from the 4 percent mark in January. Although we’re only talking fractions of a percent, that can make a big difference over the life of a loan. The roughly 70 basis point increase this year, for example, adds an additional $45,000 to the total cost of a 30-year fixed mortgage worth $300,000. Put another way, that increases your monthly payment by more than $100.

The overall inventory of homes has decreased for 42 consecutive months.

The Federal Reserve has signaled it will continue to raise its key interest rate this year (the rate at which banks lend to each other), and it will continue unwinding its mortgage-backed bond holdings — both actions could continue pushing interest rates higher this year. It remains unclear how many times the Federal Reserve plans raise rates this year.

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