Following a brief surge, interest rates on 30-year fixed rate mortgage loans fell 4 BPS (basis points) in the week ending January 8th. According to a survey of over 100 lenders administered by the Federal Home Loan Mortgage Corporation, rates now average 3.97% for 30-year borrowers who pay 0.6 discount points at close. While the 3.97% figure is a drop from the end-of-year 4.1% rate, it is still an overall increase from last year’s average of 3.73%.

Contributing Factors

The last several months have been bumpy for mortgage shoppers, and the recent Federal Reserve interest hike sparked speculation that mortgage rates would rise as well. However, since the Fed’s adjustment directly affects the national prime rate and not long-term rates, it should take a while for the rise to trickle down to borrowers.

Global concerns are also a factor for the American housing market. Concerns about the overseas economic market, such as a faltering Chinese economy and plummeting oil prices, have prompted a global equity selloff and a corresponding fall in Treasury bond yields.

Fluctuations Outside the 30-Year Mark

Conventional 15-year mortgages saw a two-BPS rise, attaining a nationwide 3.36% average with 0.5 discount points. 5-year adjustable rate mortgages saw a modest increase as well, climbing 1 BPS to 3.09%.

VA loan rates, which are extended to mortgage applicants with past military experience, are traditionally among the most cost-efficient options for borrowers. On any given day, a VA loan will beat comparable mortgage plans by 25 BPS ? and the effect is even more pronounced in 2016, with The Mortgage Report forecasting VA rates as low as 37.5 BPS below traditional plans.

What Rate Changes Mean For Lenders and Loan Officers

With the current low average rate, lenders and loan officers will see increased business from home shoppers. Even with an average 5% increase in overall home prices in 2015, the US housing market has seen brisk sales through the fall and winter. Furthermore, the Fed’s prime hike is generally seen as a vote of confidence for a strengthening economy, supporting the idea that the housing market can support a gradual increase in interest rates.

Lenders and loan officers may want to consider the Mortgage Reports’ prediction of increased popularity of zero closing cost mortgages. In this model, the lender agrees to pay the closing costs of the transaction in exchange for a small percentage point increase in the interest rate. Obviously, a careful analysis of cost-benefit is necessary, particularly with regard to closing costs (which can vary wildly state by state).

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