Mortgage rates have only been moving higher gradually, but things are adding up.  Today's move brings them to the highest levels in nearly a month.

In recent weeks, I've made it a point to qualify the actual pace of the movement by drawing a distinction between actual interest rates and the upfront costs associated with those rates.  Because mortgage lenders tend to offer rates in 0.125% increments, it takes a certain amount of market movement before the average loan applicant would see a change in their quoted rate.  But bond markets are moving every day.  Upfront costs allow lenders a way to fine tune a loan quote.

How many days can we see small increases in these upfront costs before actual interest rates begin to change?  As it happens, today is probably the first day where a majority of lenders would be quoting rates 0.125% higher than they were a few weeks ago.  Realistically, however, this should always be a "net present value" calculation for prospective borrowers.  Would you rather have a higher monthly payment and pay more upfront?  Or vice versa? 

In other words, borrowers could still decide to go with the same interest rate quoted 2 weeks ago, but the upfront costs would be high enough that most would consider simply moving up to the next 0.125% higher in rate and erasing the increase in upfront costs.  To oversimplify, here's an example with a $200k loan:

Scenario 1:

- 4.625% rate (payment $1028)
- Closing costs are $800 more than 2 weeks ago
- "interest rate" is unchanged, but "effective rate" is higher due to higher closing costs

Scenario 2:

- 4.75% rate (payment $1043)
- Closing costs would be $400 lower than 2 weeks ago
- Interest rate is higher, effective rate is also higher because the change in monthly payments will quickly supersede the savings in upfront costs.