The rate on the most common mortgage ended the year higher than in 2014, only the third time the rate has increased year-over-year in the past decade. The trend of higher rates is expected to continue into next year, putting pressure on would-be buyers to make a move sooner rather than later.
The 30-year fixed rate rose to 4.01 percent this week from 3.96 percent last week, according to Freddie Mac’s weekly survey. That’s also up from 3.87 percent in the last week of December 2014.
The rate has ended the year higher only two other times in the last 10 years. In 2013, it increased to 4.48 percent from 3.35 percent the previous year, and in 2009 it edged up to 5.14 percent from 5.1 percent. In the other eight years, the rate fell year-over-year.
The increase comes after the Federal Reserve two weeks ago upped a key benchmark rate for the first time in almost a decade. The federal funds rate had been held close to zero since December 2008. Economists and investors expect the Fed to gradually increase rates over the next year, with expectations of four hikes of a quarter point each in 2016.
There are divergent views on how much this will affect mortgage rates. Fannie Mae forecasts the 30-year rate will end 2016 slightly higher at 4.1 percent, while the Mortgage Bankers Association predicts a significantly higher rate of 4.8 percent. Both had expected to close out this year at 3.9 percent.
The difference in those forecasts means a lot of cash for homebuyers. Someone with a $200,000 mortgage (and 20-percent down payment) at 4.1 percent would pay $966 per month and $147,903 in interest over the life of the loan. At 4.8 percent, the monthly payment increases to $1,049 and the borrower will pay almost $30,000 more in interest.
That means 2016 is the year to move quickly rather than sitting on the home-buying sidelines, hoping for an unlikely decline in mortgage rates.