If you’re one of the millions of Americans who is considering refinancing your mortgage loan, you may have missed your chance to get your hands on an interest rate below 5%. Mortgage rates have jumped over the past week over 1/3 of a point and the average 30 year fixed rate is now more than 5.5%! Just three months ago, the average rate on a 30 year fixed loan was 4.6%, so rates have jumped almost a full point in just three months.

Fewer loan applications are coming in as a result of higher rates, with a 7.2% drop in mortgage applications reported for the last week alone. In November, 80% of loan applications were for people refinancing existing loans. Last week, that number dipped to a 7 month low of 59%. The wave of refinances is definitely slowing down.

What has caused interest rates to jump so quickly? The biggest factors are associated with inflation. Over the past year, the federal government has pumped somewhere in the neighborhood of a trillion dollars into the economy. You can’t print money like this without creating inflation down the road. When you combine these inflationary fears with realities like rising commodity prices, bond yields jump and rates rise. Oil prices have essentially doubled since the beginning of 2009, which means higher prices at the pump and higher overall inflation. Other commodities have seen dramatic price increases as well.

It’s important to realize that even though rates are higher than they were a few months ago, they are still historically low and attractive for people looking to reduce their monthly payments or transition an adjustable-rate loan to a fixed mortgage. The Federal Reserve still seems intent on keeping rates low to stimulate the housing market, even if it means buying billions of dollars worth of Treasury bonds themselves to keep rates low.

Interest rates won’t stay low forever though, and if you’re considering refinancing, the rate jump in the past few weeks tells us that your time may be running out.

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Tags: interest rates, mortgage, Refinance

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