U.S. mortgage interest rates climb for 4th straight week

BY Reuters | ECONOMIC | 01/19/22 07:04 AM EST

(Reuters) - The interest rate on the most popular U.S. home loan rose for a fourth straight week last week, with residential real estate borrowing costs now the highest in nearly two years as financial markets anticipate that the Federal Reserve will raise rates sooner and faster than previously expected to combat inflation.

The Mortgage Bankers Association on Wednesday said its weekly measure of the average contract rate on a 30-year, fixed-rate mortgage climbed to 3.64% in the week ended Jan. 14 from 3.52% a week earlier. That was the highest since March 2020 when the pandemic triggered a recession and drove borrowing costs to historic lows as the Fed cut its benchmark interest rate to near zero.

With inflation running at the highest rate in a generation and the job market near full employment, the Fed is now seen rapidly reining in the accommodation it put in place in the spring of 2020, and financial markets are frantically repricing for an initial rate hike by the central bank by mid-March.

That reset has driven up the yields on the Treasury securities that influence mortgage rates, and home financing costs have followed suit: MBA's 30-year contract rate has climbed from 3.27% in mid-December.

The rate rise is crimping application volumes for mortgage refinancings, but appears to be helping to lift applications for home-purchase loans, which saw the largest increase in six months last week as prospective buyers looked to lock in rates that, while rising, are still historically low.

Overall loan application volumes rose 2.3% last week on the back of a 7.9% increase in loans to buy a home, while refinancing applications dropped 3.1% to their lowest level in more than two years.

(Reporting by Dan Burns; Editing by Leslie Adler)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.