After bumping along at record lows for several years, mortgage interest rates have finally started rising again.
And they are making quick progress, having jumped up an entire percentage point in just a few months. During the latest week, the average rate on a 30-year fixed rate mortgage rose to 4.58 percent, up from 4.40 percent the week before, according to mortgage finance company Freddie Mac. That is the highest level in over two years.
“Fixed mortgage rates continued to follow bond yields higher leading up to the August 21st release of the Federal Reserve monetary policy committee’s minutes for July,” said Freddie Mac vice president and chief economist Frank Nothaft. “…Meeting participants acknowledged mortgage rate increases might restrain housing market activity, but several members expressed confidence the housing recovery would be resilient in the face of higher rates.”
Yet with in a mortgage market with heightened credit requirements, those climbing rates and rising home prices are set to price some buyers out of the market. For those in that situation, turning to an FHA loan may offer help.
These loans are made by private lenders but guaranteed by the federal government through the Federal Housing Administration. They are designed to assist buyers into homeownership who might not be able to qualify for traditional loans. Borrowers can pay as little as 3.5 percent down payments. The loan limit amount will be determined by the length of the mortgage and the size of the down payment, but loans can be as high as $729,750 in some parts of the country.
One potential drawback is that buyers with low down payments must pay monthly private mortgage insurance until their equity reaches 20 percent of the loan. That added cost is not usually enough to scare away serious shoppers though. And with today’s market, FHA loans can be a very affordable solution to rising interest rates.