Short-term rates heading higher at a rapid pace.
The [tag]Federal Reserve Bank[/tag] has continued what it began two years ago: raising the cost of borrowing. While long-term, [tag]fixed-rate mortgages[/tag] including the 15- and 30-year mortgages â€” the industry standards â€” aren’t tied directly to the Fed’s rate increases, that’s not the case with short-term mortgages, which typically move in lock-step with the Fed fund rate.
Two years ago, “there were multiple bids and people were offering far above the asking price,” said mortgage lender Clifford Morse, branch manager for American Home Mortgage in Chaska, Minn. “Some were stretching to the edge of what they could afford.” Borrowers took full advantage of low rates and attractive terms by buying bigger houses, refinancing consumer debt into their mortgages and buying second and third houses, in some cases. As a result, home prices rose double-digit in some areas. In the Twin Cities metro area, for example, home prices rose an average of 53 percent during the past five years.