4 mortgage-rate trends for 2014

A lot of attention has been paid to the fact that mortgage rates are expected to rise throughout 2014. As mortgage rates creep upward in this year, borrowers need remember that rates will still be historically low and nowhere near the interest rates consumers faced in the early 1980s.

Four unique trends will unfold in 2014 that will influence the direction of mortgage rates throughout the year.

No. 1: Conforming loan rates are rising - While no one can know for certain what will happen with mortgage rates in 2014, Cameron Findlay, chief economist at Discover Home Loans in Irvine, Calif., believes rates for 30-year fixed-rate mortgages will reach 5.25 percent by the end of 2014.

No. 2: ARMs are low and making a comeback - Qualified Mortgage (QM) rules have virtually eliminated interest-only loans and loans with 40-year terms, often used by borrowers to afford a costlier home. Some borrowers may look to ARMs, with their lower initial interest rates, to stretch their budget in 2014. Walters says borrowers mostly choose ARMs when the gap widens between adjustable and fixed rates.

No. 3: Fixed-rate jumbos priced lower than conforming loans - "Two factors are driving rates lower on jumbo loans," says Findlay. "First, these loans typically have a lower loan-to-value, often as low as 60 percent. Also, the Federal Reserve is paying banks to have excess reserves on hand, which creates excess liquidity. Lenders are concentrating on offering jumbo loans because these loans require very high credit scores and a lot of equity so they're considered very low risk."

No. 4: The Fed's influence over mortgage rates will wane - "The Fed's likely to continue removing itself from the mortgage market even if the economy isn't as strong as we'd like, in part because [Quantitative Easing] isn't working as well as it did in the beginning," says Keith Gumbinger, vice president of HSH.com in Riverdale, N.J. "Mortgage rates didn't go back down to rock bottom rates even after the Fed initially delayed tapering their bond-buying activity. They'll still have influence over short-term interest rates, but direct manipulation of the mortgage market is likely to stop."