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figure_drawing_bar_graph_increase_400_clr_10998The month of May, 2013 saw the steepest one month hike in mortgage rates in last 5 years. In the last five weeks, 30 year fixed mortgage rates have climbed 0.50% to 0.75%. Interest rates for virtually all the loan programs have increased substantially.

Freddie Mac in its latest weekly survey reported that the fixed mortgage rates increased for the 5th week in a row. In the May 2, 2013 survey the 30 Year Fixed mortgage rate was reported at 3.35% with 0.7 points; last week that increased to 3.91% with 0.7 points. During the same time period, 15 Year Fixed mortgage rates increased from 2.56% to 3.03%.

These rates are for conforming loan limits under $417,000. For high cost areas like San Jose, CA where conforming loan limit is $625,500 the rates are usually 0.25% higher.

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Mortgage rates are directly impacted by how mortgage backed securities (MBS) trade on Wall Street. Rates have inverse co-relation with MBS , i.e. when MBS prices go up, rates go down and vice-a-versa. MBS usually go down in price when there is better than expected economy news.

In last one month, a specific type of MBS called FNMA 3.0 coupon, has gone down a whopping 397 basis points, resulting in soaring mortgage rates.

According to a Bloomberg article, Zach Pandl, a senior interest-rate strategist at Columbia Management Investment Advisers, said – We are entering into a period of sustained increases in rates. The Treasury market has had a fantastic run, and that has probably come to an end. We’ve passed that inflection point as evidenced by the improvement in housing and the labor market. We’ve seen enough evidence of a self-sustaining recovery.

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During my weekly radio show – Mortgage Matters, I have been warning my listeners every week that the rates would increase and have been advising them of locking their rates.

I continue to feel the same way. Even though, the inflation is still low and the economy is not completely out of the woods, I am not very bullish about rates at this time. Its time to get used to rates in 4s and not just low 4s but mid 4s. I will not be surprised if the rates increase another 0.125%-0.25% before stabilizing.

If you are shopping for the mortgage rates and you find something you like, do not play the market. Lock the rate the soonest you can. Work with a lender like Arcus Lending, where we track the live MBS and are able to advise you when to lock or float your rate.

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