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Mortgage Rates Decline but Will Increase In the Coming Months and Years

Average mortgage rates today are lower but will move higher in the coming months and years. Current 30 year conforming mortgage rates are averaging 3.92 percent, down from last week's average rate of 3.97 percent. 30 year mortgage rates dropped to a 20 month low of 3.73 percent in January.

Mortgage rates are only 20 basis points higher from the January low but the increase has already zapped refinancing demand. The Mortgage Bankers Association (MBA) announced mortgage applications for refinancing decreased 8 percent in their latest MBA Survey.

Mortgage rates are forecast to move higher in 2015, by the end of the year average 30 year rate is expected to be around 5.00 percent. Rates will increase this year because bond yields are forecast to move higher because the Federal Reserve is expected to increases the federal funds rate.

The Federal Reserve will start tightening monetary policy by increasing the federal funds rate probably starting in June. Mortgage rates are not directly tied to the federal funds rate but will move higher when the rate is increased.

Most mortgage lenders set mortgage rates based on U.S. Treasury yields. When the fed funds rate is increased, Treasury yields move higher, which forces lenders to increase their lending rates.

Average Mortgage Rates TodayCurrent mortgage rates on 15 year conforming loans are averaging 3.00 percent, a decline from last week's average 15 year mortgage rate of 3.08 percent. 15 year rates are not far from the 20 month low of 2.96 percent set in January. By the end of this year 15 year refinance rates are expected to hit 4.00 percent.

Today's 30 year jumbo mortgage rates are averaging 4.23 percent, a sharp decline from the prior week's average 30 year jumbo rate of 4.37 percent. 30 year jumbo refinance rates are also expected to head towards 5.00 percent of the end of 2015.

15 year jumbo rates are currently averaging 4.06 percent, down 9 basis points from the previous week's average of 4.15 percent. The 17 basis point spread between average 30 year and 15 year jumbo rates is the lowest it has ever been. By the end of 2015 average 15 year jumbo rates will be between 4.60 percent and 4.80 percent.

Average 5 year conforming adjustable mortgage rates are at 3.48 percent today, up from last week's average 5 year adjustable rate of 3.44 percent. 5 year adjustable refinance rates are expected to hit 4.00 percent by the end of this year.

5 year jumbo adjustable mortgage rates are slightly higher today at 3.66 percent, up 1 basis point from last week's average rate. 5 year adjustable jumbo refi rates are also expected to be around 4.00 percent by the end of 2015.

The current cycle of higher mortgage rates and refinance rates is expected to last for at least a few years. If you're thinking about buying a home this year is probably as good as time as any in recent memory. Mortgage rates are still low and housing prices in many markets are still below the bubble peak of 2006/2007.

If you're in a position to refinance you should do so sooner in 2015 than later. Refinancing to a shorter term loan, like a 15 year loan instead of a 30 year loan, is an even smarter decision. You can save tens of thousands or even hundreds of thousands of dollars in mortgage interest by getting a shorter term loan.
Author: Brian McKay
March 2nd, 2015