5-Nov-16 – In early November, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed mortgage rates averaged 3.54 percent, up from 3.47 percent a week earlier. A year ago, 30-year fixed loans averaged 3.87 percent.

15-year fixed-rate loans averaged 2.84 percent in early November, up from 2.78 percent a week earlier. At this time last year, the 15-year mortgage averaged 3.09 percent.

“A jump last week in the PCE – the price index tracked most closely by the Federal Reserve Board – raised the prospect that inflation might not be completely dead after all,” observed Sean Becketti (left), chief economist for Freddie Mac.

“Investors reacted by driving the yield on the 10-year Treasury to its highest point since last June,” Becketti said. As a result, the 30-year fixed mortgage rate average jumped seven basis points to 3.54 percent, the largest one-week increase in more than six months.

Worried about rising inflation, economic analysts are predicting the Federal Reserve Board is likely to hike the federal funds rate at its next meeting in early December. The immediate result of a Fed rate hike could mean a 0.25 percent increase in home loan rates.

It pays to shop around for a mortgage. A survey by Bankrate.com shows Chicago-area lenders were charging a range of 3.289 to 3.636 percent in early November on benchmark 30-year fixed loans.

Improving economy is nudging interest rates

Interest rates are creeping higher because the nation’s economy is heating up. The U.S. economy added 161,000 new jobs in October, cutting the unemployment rate to 4.9 percent from 5.0 percent, the Labor Department reported.

This year, average worker pay posted the biggest 12-month increase in seven years. Average pay rose 2.8 percent to $25.92 an hour – a gain of ten cents an hour from a year ago.

Despite near rock-bottom loan interest rates, first-time home buyers and Millennials are not entering the housing market en masse in 2016, analysts say. Once close to 70 percent, the nation’s homeownership rate matched a record low 62.9 percent in the second quarter of 2016, while apartment occupancy hit a ten-year peak.

On the positive side, qualifying for a mortgage in recent years has become a bit easier than it was during the Great Recession, experts say. Mortgage lenders are taking a stronger interest in approving and keeping loans in their portfolios.

In 2016, home buyers and homeowners seeking to refinance conventional loans have an average credit score of 746, while borrowers obtaining Federal Housing Administration insured mortgages have an average credit score of 680. Before the housing crash, borrowers seeking an FHA loan often were approved with FICO scores in the low-600 range.

Along with a good credit score and down payment cash, borrowers also should expect to play closing costs, which are the actual expenses charged by lenders to originate a home loan.

Common closing costs can include application and processing fees, property appraisal fee, the cost of the credit report, a tax service fee, and loan origination fee.

“Closing expenses are charged to the borrower and often run between two and four percent of the loan amount,” said Angela Watkins (left), loan consultant for Caliber Home Loans, a Chicago-based mortgage banking firm.

If you are buying or refinancing a condominium, and are unable to place a down payment of 25 percent or more, expect to pay a higher interest rate – perhaps one-eighth to one-quarter of one percent more, Watkins said. A variety of fixed-rate, adjustable-rate, and government-insured loans are available.

With a down payment of less than 20 percent, borrowers also will be required to pay for private mortgage insurance.

The conforming maximum mortgage amount for homes and condos is $417,000 on conventional loans sold to Fannie Mae and Freddie Mac in the secondary mortgage market. The FHA loan limit is $365,700. For buyers and owners seeking a jumbo mortgage, Caliber Home Loans will lend up to $2.5 million.