This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Stay Calm. Higher Mortgage Rates Aren't That Big a Deal

NEW YORK ( TheStreet) -- The Federal Reserve is out with its latest projections for the U.S. economy, and those estimates lean toward the bullish.

At an Open Markets Committee meeting Wednesday and Thursday, Fed officials released the following benchmark projections:

U.S. Gross Domestic Product in 2013: 2.3%
2014: 3.1%
2015: 3.5%

Unemployment rate in 2013: 7.3%
2014: 6.8%
2015: 6.2%

Core inflation in 2013: 1.3%
2014: 1.7%
2015: 2%

With those estimates, the Federal Reserve is projecting a strengthening economy but stopping short of easing its monetary stimulus strategy, and it will continue to buy up agency mortgage-backed securities at a rate of $40 billion per month and longer-term U.S. Treasuries at $45 billion per month.
[Read: <a target="blank" data-add-tracking="true" href=""><em>3 'Inside' Tips for When You Need a Mortgage </em></a>]

"Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the committee's dual mandate," the Fed says in minutes released from the Open Markets Committee meeting.

Ostensibly, that should keep interest rates low and mortgage rates from rising too high. But as homebuyers who have done their homework know, rates have risen this year, especially in the all-important summer buying months.

According to the BankingMyWay Weekly Mortgage Rate tracker, rates have risen from about 3.9% on June 1 to 4.6% this week. That's a fairly significant rise in a short time, and one that could scare off homebuyers who see higher mortgage payments when they see higher interest rates.

But should those rates really scare off potential homeowners? Not really, says Rick Allen, chief operating officer of Mortgage Marvel, an online mortgage services provider.

"Since Federal Reserve Chairman Ben Bernanke announced that the Federal Reserve might slow the pace of its bond-buying stimulus this year, mortgage rates have jumped dramatically," Allen says. "Potential homebuyers might be discouraged, but they shouldn't be."

Allen lays out the following scenario for homebuyers, maintaining that the difference in mortgage payments from a 3.9% mortgage rate to a 4.6% mortgage rate isn't all that dramatic.
[Read: <a target="blank" data-add-tracking="true" href=""><em> With Little Building Going On, Homeowners With Equity Can Sell Fast and High </em></a>]

Take out a $100,000 loan, for instance, and your total monthly payment at 3.9% will be $471.67, while at 4.6 it's $511.45 -- a difference of $39.78. Take out a $300,000 loan and those payments are $1,415 and $1,534.35 respectively, for a difference of $119.35.

While forking over an extra $40 or $120 a month (or somewhere in between) to your bank or lender isn't optimal, it shouldn't be a deal breaker to own your own home, Allen says.

Plus, as more buyers step up and buy homes, it drives up the prices of their homes and others, meaning they can make up the lost monthly payments in the value of their own houses -- as long as they keep rising, which Allen expects.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.49 0.91%
FB $117.68 -0.75%
GOOG $692.94 -0.75%
TSLA $233.96 -3.20%
YHOO $36.00 -1.40%


Chart of I:DJI
DOW 17,699.37 -191.79 -1.07%
S&P 500 2,060.40 -21.03 -1.01%
NASDAQ 4,763.4950 -54.0990 -1.12%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs