Why Rising Mortgage Rates Are Overblown

Rising mortgage rates have plagued the housing market for months, having an impact on home affordability and leading some to predict the end of the housing market's recent rebound. But are would-be homebuyers overreacting to the rise in rates?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, talks about rising mortgage rates and why their effects have been overblown. Dan notes that refinancing activity has slowed considerably, hurting overall profitability at lenders Wells Fargo (NYSE: WFC  ) and JPMorgan Chase (NYSE: JPM  ) , but that even if rates hadn't gone up, refinancing likely wouldn't have continued much longer even in a flat rate environment. Moreover, for homeowners considering a new purchase, the latest three-quarter-point rise has pushed up borrowing costs by roughly $100 per month on a $250,000 mortgage loan.

Dan goes on to point out that incentives from Lennar (NYSE: LEN  ) and other homebuilders are offsetting some of the higher financing costs for would-be home-buyers. He closes by discussing the bigger risk of soaring home prices on the market, noting that mortgage-insurance providers Genworth Financial (NYSE: GNW  ) and MGIC Investment (NYSE: MTG  ) face the long-term challenge of avoiding the same deterioration of loan quality that led to their big losses during the financial crisis.

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  • Report this Comment On November 09, 2013, at 11:13 PM, TheShadow wrote:

    I guess there is a good reason why it is called Motley's "Fool"

    Let's assume he is right it only costs $100.oo per month. So, that would be $100.00 X 12 which only comes to and extra $1,200.00 the bank gets for doing nothing but raising it's rates. Now let's take that one more step, take that $1,200.00 and multiply it for 30 years, let's see now that comes to, uh, oh yeah, $36,000.00!

    That's $36,000.00 that the banks get of your hard earned money, for doing absolutely nothing other than saying we want it, and if you want to buy a home you have to pay it.

  • Report this Comment On November 11, 2013, at 12:26 PM, huntergnr wrote:

    I'm in the process of purchasing a home and my lender told me that the biggest farce in the industry is that the prime rate is tied to mortgage rates - he said it's completely not true. I did a little research on it and found several instances where what he claims is true. Anyone know the truth?

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