22-May-22 – Tighten your seat belts, Chicago home buyers. The mortgage rate roller coaster may be headed over Mount Everest.

On May 5, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed home loans across the nation rose a quarter of a point to an average of 5.27 percent, up from 5.1 percent a week earlier. A year ago, rates on the popular 30-year loan averaged 2.96 percent.

Fifteen-year fixed mortgages averaged 4.52 percent, up from 4.40 percent a week earlier. A year ago, the 15-year fixed loan averaged 2.30 percent.

“Mortgage rates resumed their climb this week as the 30-year fixed reached its highest point since 2009,” noted Sam Khater (right), Freddie Mac’s chief economist. “While housing affordability and inflationary pressures pose challenges for potential buyers, house-price growth will continue but is expected to decelerate in the coming months.”

The mortgage rate roller coaster appears to be speeding uphill toward six percent after the Federal Reserve Board’s half-percentage-point rate hike on May 5, their most aggressive move since 2000. The increase in the key Fed Funds rate raised it to a range of 0.75 to 1 percent, the highest point since the pandemic struck two years ago.

Experts forecast that the Fed is planning 0.50 to 0.75 percent increases in its funds rate at its next two meetings, which could easily push benchmark 30-year fixed home loans to 6 percent or higher.

The Fed’s credit tightening will likely mean higher loan rates for many consumers and businesses over time, including mortgages, credit cards, and auto loans.

As a result, the record-low home loan deals in the upper-2 percent range that kept the housing market at full speed over the past two years are now a faded memory.

Economists say projections released by the policy-setting Federal Open Market Committee signal the likelihood of the Fed raising rates several more times this year in an effort to control inflation, which hit 6.6 percent last month – the highest point in four decades. That scenario would push the Fed Funds rate 1.75 percent or higher by the end of this year.

(Left) The Federal Open Market Committee meets in Washington, D.C., in 2016. (Photo obtained from Federal Reserve.)

On May 5, the 10-year Treasury rate – the gauge economists use to forecast 30-year fixed mortgage interest charges – rose to 3.04 percent from 2.92 percent.

This means that benchmark six-percent-plus mortgage rates likely are on the very near horizon, especially for borrowers who have a FICO score under 740. If you have a mediocre 650-point credit score, expect to pay a sky-high 6.25 percent today for a 30-year fixed mortgage, lenders said.

If the Fed hikes its rates several more times in 2022, mortgage rates could easily rise to 6.5 percent or higher by the end of the year.

The Freddie Mac survey is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who place a 20 percent down payment and have excellent credit.

While mortgage rates floated near – or below – the three percent bargain range for most of 2021, thousands of Chicago-area homeowners refinanced their loans. Those who sat on the dock not only missed the boat, but the vessel now has sunk into deep waters and is attracting barnacles.

Currently, the Fed faces an economic balancing act – the worst since the early 1990s. If the Fed shifts too quickly, the central bank could roil markets and tip the economy into a deep recession, experts say.

The big worry is the long-range impact of the Russian invasion of Ukraine, which has sent the cost of fuel, food, and metals skyrocketing. This raises economist fears of a 1970s-style stagflation that would create threats to prices, growth, and financial market stability.

Thirty-year fixed mortgage interest rates ended 2020 at a rock-bottom 2.65 percent – the lowest level in the Freddie Mac survey history, which began in 1971. Home loan rates set new record lows an amazing 16 times in 2020, and tens of thousands of homeowners refinanced.

Loan deals still available

However, Chicago-area borrowers who get off the fence still have a faint chance to lock in the following bargain rates as of May 5, reports RateSeeker.com.

• First Savings Bank of Hegewisch was quoting 4.6 percent on 30-year loans and 3.95 percent on 15-year mortgages with a 20 percent down payment and a $615 loan fee.

• Liberty Bank was quoting 4.568 percent on a 30-year loan and 3.625 percent on a 15-year mortgage with 20 percent down and a loan fee of $646.

• Mutual of Omaha was quoting 5.166 percent on 30-year loans and 4.625 percent on 15-year mortgages with a 20 percent down payment and a $850 loan fee.