Why Rising Mortgage Rates Are Overblown

Rising mortgage rates have plagued the housing market for months, having an impact on home affordability and leading some to predict the end of the housing market's recent rebound. But are would-be homebuyers overreacting to the rise in rates?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, talks about rising mortgage rates and why their effects have been overblown. Dan notes that refinancing activity has slowed considerably, hurting overall profitability at lenders Wells Fargo and JPMorgan Chase , but that even if rates hadn't gone up, refinancing likely wouldn't have continued much longer even in a flat rate environment. Moreover, for homeowners considering a new purchase, the latest three-quarter-point rise has pushed up borrowing costs by roughly $100 per month on a $250,000 mortgage loan.

Dan goes on to point out that incentives from Lennar and other homebuilders are offsetting some of the higher financing costs for would-be home-buyers. He closes by discussing the bigger risk of soaring home prices on the market, noting that mortgage-insurance providers Genworth Financial and MGIC Investment face the long-term challenge of avoiding the same deterioration of loan quality that led to their big losses during the financial crisis.

Will higher mortgage rates crush banks?
Many investors fear that higher rates could really hurt the industry, but the sector has one notable stand-out. In a sea of mismanaged and dangerous peers, it rises above as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.

The article Why Rising Mortgage Rates Are Overblown originally appeared on Fool.com.

Fool contributor Dan Caplinger owns warrants on Wells Fargo and JPMorgan Chase. The Motley Fool recommends Wells Fargo and owns shares of JPMorgan Chase and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story