FHA mortgage rates continued their upward climb this week, reaching their highest point since the week of March 12, 2015.
The average rate for a 30-year fixed mortgage was 3.85% this week, according to survey data released by Freddie Mac. The average for a 30-year FHA-insured home loan was slightly lower at 3.82%, according to a 15-lender survey conducted by the Home Buying Institute this week.
FHA mortgage rates have been hovering below 4% all year, and many economists expect them to remain in this low range for the foreseeable future. But the recent uptick is worth watching, especially for people who are in the market for a mortgage loan. And change may be coming in the fall.
FHA Mortgage Rates Still Low, Thanks to Fed
Low lending costs are being preserved, in part, by the Federal Reserve’s policies regarding the federal funds rate. In its last meeting, the Federal Open Market Committee (FOMC) said it would continue to keep the inter-bank lending rate near zero for the time being. This is one of several factors holding FHA mortgage rates in the sub-4% range.
According to the minutes from the FOMC’s last meeting in April:
“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate.”
The committee is keeping an eye on employment and inflation data, as indicators of when they might increase rates. When the national economy reaches “maximum employment and 2 percent inflation,” Fed officials will likely alter their current policy and raise the federal funds rate. This could affect long-term borrowing costs as well, including 30-year mortgage loans.
But for now, the FOMC is content to steer along its present course. This accounts for the relative stability we have seen in recent months, where FHA mortgage rates are concerned.
More Home Buyers Went With FHA in Q1 2015
More home buyers used FHA loans in the first quarter of 2015, when compared to the same period last year. According to RealtyTrac’s “Residential Loan Origination Report” for Q1 2015, released earlier today, FHA loan originations (for home purchases) increased by 5% from a year ago. This is partly due to a rise in loan originations across the board, and partly a testament to FHA’s continued popularity among home buyers seeking a more flexible mortgage product.
Related: Wells Fargo making fewer FHA loans
First-time home buyers, in particular, are attracted to this program due to the 3.5% down payment option, which is lower than the average down payment for a conventional / non-FHA home loan. In order to qualify for the 3.5% minimum investment, borrowers must have a credit score of 580 or higher (among other things).
The million-dollar question: How long will FHA mortgage rates remain below 4%? Will they rise significantly sometime in 2015? That depends in part on what the Fed does. Some analysts, including the Chief Economist for Freddie Mac, expect the Fed to begin increasing rates in September 2015. If that happens, home buyers could face increased borrowing costs in the fall of this year, compared to what we are seeing right now.
Disclaimer: This story contains third-party data and commentary that are deemed reliable but not guaranteed. The publishers of this website make no claims or guarantees about future mortgage rates or other economic conditions.