Don’t let the quarter-percentage point Federal interest rate hike put a damper on searching for your new home. It actually won’t make much of a difference on mortgage rates anytime in the near future.
That’s because the Federal interest rate is one factor among many that goes into determining mortgage interest rates. You’re more likely to feel the effect on shorter-term loans, such as credit cards and home equity lines of credit. Watch for these to increase roughly a quarter-percentage point in the next month or two.
Loans that are linked to longer-term interest rates, including mortgages and car loans, will be affected minimally even if the Fed continues to gradually raise its rate a total of 1 percentage by the end of 2016 as many analysts expect. If that happens, the average 30-year fixed mortgage is predicted to only rise from roughly 4 percent now to about 4.5 percent.
To put that in perspective, before the Great Recession, the 30-year fixed mortgage rate never fell below even 5 percent.
So, what does that really mean for you, the buyer?
According to Mark Fleming, chief economist for title insurance company First American Financial Corporation, a 1 percent total increase by the end of 2016 is minimal. It would equate to about $50-$70 per month in additional payments.
“You can find 50 bucks by going to Starbucks less often,” he said in an AOL article published on Dec. 19, 2015.
In that same article, Svenja Gudell, chief economist for Zillow, said that the rate increase is going to be “so tame and so controlled” that homeowners will be able to adjust with relative ease.
To put it another way, you haven’t been priced out of the market and won’t be anytime soon. Now is still a great time to buy a house.
You will, however want to shop around a little bit more for your loan. Like anything else, mortgages and rates vary from one lender to the next, so don’t automatically take the first offer you get. Compare the rates before you sign on the bottom line.
We trust and highly recommend working with Matt Belmont and Dan White at Primary Residential Mortgage if you’re looking for a home anywhere in the Valley of the Sun. We’ve worked with them on a number of high-end and mid-range transactions, and they’re always glad to answer questions and guide you through the entire transaction, too.
The exception to the interest rate rule
The Federal interest rate can have a significant impact on adjustable rate mortgages (ARMs). If you have one, you’ll likely be hit with a higher rate at the date of your next adjustment. If you’re thinking about getting one, you’ll want to refinance into a fixed rate mortgage before your grace period (typically 5 years) is up and you’re faced with annual rate adjustments.
The good news is that most ARMs are capped so that your interest rate cannot exceed more than 5 percent of your original rate. As long as your original rate was under 5 percent, you’re likely to stay in the single digits even as the Fed rate climbs.
Is your head spinning from all the interest rate news and this update? You’re always welcome to call us or our preferred partners at Primary Residential Mortgage and we’ll gladly answer any questions you might have.