By now, hopefully everyone knows that mortgage rates are not determined by the Federal Funds rate – they are determined by the market of buying and selling mortgage bonds.

If you still think that Ben Bernanke sets the mortgage rates by announcing the Fed has raised or lowered interest rates… sorry to break your heart, but it isn’t true.

But recently, the Fed has been buying mortgage bonds – between 10 and 20 billion each week — and that has helped the interest rates on mortgages stay low.

And the program that has allowed the Fed to buy mortgage bonds is coming to an end after spending somewhere around 1.2 trillion over the past year or so.

Experts generally agree that it means the mortgage bond market is going to adjust in a way that results in increased interest rates on mortgages.

Which means that you can reasonably expect mortgage rates to rise this year – although no one can tell you for sure how much they expect them to rise. Some experts say that they may rise only slightly, others say that a 2% jump is not out of the question.

According to the SF Chronicle:

Julian Hebron, branch manager at RPM Mortgage’s San Francisco office, anticipates a bump up to around 5.5 percent by summer with rate volatility all year.

“The Fed isn’t going to start dumping mortgage bonds on April 1, they’re just going to stop buying,” he said. “By that time, improving economic data is likely to push the Fed toward a rate hike bias. This will contribute to higher mortgage rates, slowing refi activity, and less mortgage bond supply. So while the Fed won’t be buying anymore, rates shouldn’t spike immediately because there will be less supply for markets to absorb.”

Christopher Thornberg, principal at Beacon Economics in Los Angeles, thinks the Fed’s withdrawal will have a radical impact.

“Clearly, when they stop printing all that money, it’s going to be a shock to the system. I have to assume that when they pull back on it, it will cause a 100- to 200-basis-points rise” to rates of 6 percent or 7 percent, he said. “When they start selling off the stuff they purchased, which by my guess would come early next year, that would cause another 100- to 150-basis-points rise.”

But it is also possible that the Fed could step in and buy even more mortgage bonds than they the $1.2 (or so) trillion that they have already bought and in his Congressional testimony released last week, Chairman Bernanke said the Fed eventually will take steps to forestall inflation that also are likely to result in higher interest rates for all loans.

So it remains to be seen exactly what the impact of the Fed discontinuing the mortgage bond buying program – but if you are planning your home financing options, you may want to remain on the safe side and expect higher rates coming soon.

Every once in a while, I see something “new” that I haven’t seen before. Earlier this month, Chase announced that they now have a “1% Mortgage Cash Back” program. According to the offer, highlights and details include:

“With any new Chase mortgage or refinance, choose either 1% cash back or a 1% payment against your principal balance annually when you sign up for automatic payments on a new Chase Mortgage. Getting started is easy.

Open a new Chase mortgage.

1% Mortgage Cash Back works with any new Chase mortgage or refinance.

Enroll in 1% Mortgage Cash Back and choose how you want to receive your reward:

Deposited into your Chase or WaMu checking account OR applied as a payment against your mortgage principal

Set up Automatic Mortgage Payments from your Chase or WaMu checking account.

At your loan closing, complete your enrollment in our automatic mortgage payment service with your Chase or WaMu personal checking account. With this convenient, FREE service, your monthly mortgage payment is automatically deducted from your checking account. You’ll never miss a payment, never worry about looking for a stamp.

Watch your cash back grow!

Keep an eye on your savings with each statement. And on each loan anniversary you’ll receive your reward – as a direct deposit into your checking account or applied against your mortgage principal.”

“We talked to many customers and prospects, and they really liked the idea of having their bank help them pay down their mortgage,” said David Lowman, Chief Executive Officer of Chase Home Lending, in a press release. “They also liked the option of getting the reward in cash.”

Is This A Good Deal?

Kind of, but you might be surprised to learn that many other banks are offering things such as an interest rate discount when you get your loan if you agree to use automatic withdrawls on your mortgage and a discounted interest rate may end up saving you far more than 1% cash back on your mortgage. So be careful to do the math when considering whether or not this program is for you — because it may or may not be the best thing for you.

But I have to hand it to the marketing people at Chase — they are a creative bunch.

Justin McHood is a loan officer living in the Phoenix, Arizona area. You can find Justin on Facebook, Twitter, ActiveRain or LinkedIn and he is happy to answer any mortgage-related questions that you may have.

NEW YORK — Mortgage applications declined for the fourth straight week, as falling demand to refinance home loans outweighed a rise in applications to buy houses, an industry group said Wednesday.

Borrowing costs increased for all loan types last week, with the average rate on 30-year fixed-rate loans climbing to a six-week peak.

Thirty-year fixed home loan rates last week rose 0.03 percentage point to 6.16%, excluding fees, matching the rate of the Feb. 23 week, the Mortgage Bankers Association said.

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