FHA Loan Rates Jump On Fed Minutes

The FHA interest rate is now at its highest level of the year.

Yesterday’s release of the Federal Reserve Minutes from the January meeting sent mortgage rates higher.

The release is a very detailed follow-up document that expands greatly on what was stated in the brief post-meeting press release.  The Fed Minutes outline the debates and dissenting opinions which is a more thorough view than just the summary statements of the press release.  Yesterday, Wall Street took a look at the debates and didn’t like what they were seeing.

Specifically, they reacted to:

1. Confirmation that the mortgage bond purchase program will end March 31, 2010
2. To tighten monetary policy, the Fed intends to raise the Fed Funds Rate
3. Consumer spending is improving

These are all great economic signs.  They are not good for mortgage rates.  The last part of the Fed’s comments is what really hurt the bond market:  “higher medium-term inflation.”  Inflation hurts bonds which in turns hurts mortgage rates.

This growing Fed optimism is great except for two things:  the FHA interest rate is rising and so too will home prices.   Stronger economies push both of those figures higher.

If you are looking at a home purchase or refinance, it might be wise to push your time frame up.   Rates are likely to continue to rise after March 31st and will likely rise in these next 40 days as well.