Why Did Mortgage Interest Rates Increase Midday?

yellen 750xx4000-2248-0-15Rule of Thumb: Bad economic news = lower interest rates.

Good economic news = higher interest rates.

November 4, 2015, Federal chairwoman Janet L. Yellen spoke before the House Financial Services Committee. She said the economy is “performing well,” and therefore “it could be appropriate” to raise interest rates mid-December.

A few hours later, William C. Dudley, president of the Federal Reserve Bank of New York, said, “I fully agree with the chair. It is a live possibility, but let’s see what the data shows.”

Mortgage lenders reacted immediately. I was sitting at my desk when the email from our Pricing Dept. came through with the subject line: “RATES WORSENING!!!!” All interest rates were suspended while readjustments were made. New rates posted showed an increase in fee for any particular rate of about 0.3%.

If, for example, you had a $200,000 loan, to get the interest rate you want, it would cost $600 more in fee. (.3% of $200,000)

Lenders felt the need to raise rates immediately, because they don’t want to be holding a lot of loans that are under-priced next month.

Will Rates Go Down Again?

It can appear that a midday rate hike is an over-reaction, a knee-jerk response that went too fast and too high. It often happens that the cost settles back down over the next few days or so. But not always.

Just as lenders were taken by surprise midday, no one can accurately predict on a consistent basis what will happen with interest rates. Experts give educated guesses, but that is all they are.

Yesterday, several representatives urged Janet Yellen to wait longer before raising interest rates. California Democrat Brad Sherman joked, “If you want to be good with the Almighty, you might want to delay until May.”

One thing is for sure: only God Almighty knows for certain what will happen.

Photo credit: Bloomberg Finance

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