Rapidly Rising Homeownership Costs And The End Of The Refi Boom

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The Refi Boom has ended, and so has the record-low cost of homeownership. If you're waiting for the market "to bottom" before locking a rate, you missed your window. Just don't miss it twice.

The Mortgage Rate Rally Ends

Between April and early-November 2010, mortgage rates fell more than 1 percent. With each passing week, rates went lower, and lower; first breaking through 5 percent, and then through 4-and-a-half. For a brief moment, 30-year fixed rates touched 4 percent even.

And then a retracement higher began.

November 3, 2010, the Federal Reserve announcement it would bolster U.S. economy via an additional $600 billion investment in the bond markets. The economy had already been showing signs of recovery, though, so the Fed's move was viewed as being purposefully inflationary.

Literally overnight, Wall Street soured on mortgage bonds. This is because inflation devalues the U.S. dollar and everything denominated in it, which includes mortgage bonds.

When inflation is present, mortgage bonds lose their value, and mortgage rates rise to compensate.

Big Stimulus Leads To Big Inflation

There's more than the QE2 program that's causing rates to rise. There's also the other Fed stimulus plan -- the Fed Funds Rate.

Since December 2008, the Fed Funds Rate has been held within a target range of 0.000-0.250 percent and that, too, is propelling the U.S. economy forward. Banks and businesses have been borrowing cheaply and making capital investments.

Consumers have been spending, too.

Remember, the recession ended 20 months ago (even if it doesn't feel like it all the time) and it takes time for the world to reboot. With all this stimulus in place, though, Wall Street is worried that the economy will go from dead-stopped to full-speed.

Think: Fred Flintstone driving around with bald feet -- wheels spinning, then <poof!>.

Hence, rising mortgage rates.

The Rising Cost Of Homeownership

Mortgage rates are up. Therefore, so the cost of homeownership. It costs more to carry a 30-year loan to term today than at any time since mid-April. It's a big jump in cost, too.

Comparing a $300,000 mortgage's long-term cost over the last 3 months:

• November 11 : $528,649 to carry the loan to term
• February 10 : $585,172 to carry the loan to term

That's a $56,500 difference in cost -- a 10.6% increase over the long-term life of a loan.

If you bought a home in November and worried about over-paying at the time, let's keep it relative. Had you waited until today to buy, you may have saved a few thousand on the home, for sure, but paying for the home would have jumped by a boatload.

As rates keep rising, costs will, too.  If you're in it for the long-haul, you'll save more money with a cheap mortgage than you will with a cheap house. The cheap house will need upgrades. The cheap mortgage will not.

Ready To Apply For A Mortgage?

It's time to get a rate quote. If you have a loan officer, call him. If you don't, or if you just want a comparison quote,. You should include some basic details about your home and your mortgage in that email, but no need to write paragraphs. Simple, short bullet points work just fine.

I respond to all my own emails and can have pricing in your hands within an hour.