Mortgage rates climbed toward 7% after America’s credit rating was downgraded

Mortgage rates climbed toward 7% after America’s credit rating was downgraded | The Enterprise World

Mortgage rates in the US increased this week, approaching 7%. The action follows the Federal Reserve’s rate increase from last week and Fitch Ratings’ downgrading of Freddie Mac and Fannie Mae as well as US sovereign debt this week.

According to information from Freddie Mac issued on Thursday, the 30-year fixed-rate mortgage averaged 6.90% in the week ending on August 3, up from 6.81% the previous week. The 30-year fixed rate was 4.99% a year ago, the lowest it had been in the previous 12 months.

The combination of positive economic data

According to Sam Khater, chief economist at Freddie Mac, “the combination of positive economic data and the U.S. government credit rating downgrade caused mortgage rates to rise this week.”

High-interest rates can increase monthly expenses for borrowers by hundreds of dollars, which limits how much they can purchase in a market that is already too expensive for many Americans.

Since March 2022, the Federal Reserve has raised its benchmark interest rate 11 times due to high inflation. It has reached the greatest level of its fed funds rate in 22 years.

Since last summer, inflation has steadily decreased, and many observers think the Fed has stopped raising interest rates.

Mortgage rates typically follow the yield on the 10-year Treasury note rather than necessarily reflecting Fed rate rises. Interest on Mortgage rates can be affected by investor expectations for future inflation, the demand for U.S. Treasury securities abroad, and the Fed’s interest rate decisions.

Mortgage rates climbed toward 7% U.S. credit rating downgrade: What you need to know

 Average rate was more than twice as high

Two years ago, when ultra-low rates sparked a wave of home purchases and refinancing, the average rate on a 30-year mortgage rates was more than twice as high. There are currently fewer properties available due to the much higher rates. Homeowners who secured such lower interest rates two years ago are hesitant to sell and purchase a new home at a higher rate.

However, many mortgage lenders are currently compelled to quote rates in the mid-7 range.  A “top tier” scenario is represented by our 7.2% index.  Since few loans are originated at rates that don’t fall on, it means that the majority of lenders are at 7.25%.increments of 125%.  You might see something closer to 8% very soon if the credit score is a little worse, if it’s a condo, if it’s an investment property, etc.

Due to the fact that many businesses are providing rates with upfront discount points, many loan bids are still in the middle to upper sixes. Most lenders will still reduce the rate by at least 0.375% with a discount point (1% of the loan value).  Just keep in mind that 6.875% with one point and 7.25% without points represent the exact same offer.  Whether a borrower would want to pay more upfront or over time will depend on personal preference.

Exists a chance for relief?  Always have hope.  Timing is the only issue in question. Timing will be determined, among other things, by inflation and economic indicators.  Anxiety over tomorrow’s significant jobs report may have contributed to a portion of today’s rate increase.  Rates may continue to rise if it is as strong as some other recent data.

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