After much hinting last year, on December 16 2016 the Federal Reserve raised short-term interest rates by 0.25 percentage point. It’s been quite some time since the Fed had made such a move. Since 2008, the Fed has kept interest rates low in order to help the economy recover and stabilize. That doesn’t mean, however, that the Fed is crippled and won’t be able to support any rate hikes.
In fact, the Fed rate hike suggests the continuous strengthening of the U.S. economy. Surely this bodes well for the country, but what does the Fed rate hike mean for homebuyers, and how will it affect mortgage payments? Let’s find out.
The worst (so far) has already happened
According to finance experts, the Fed rate hike won’t necessarily bring any significant changes to mortgage rates and other real estate-related queries. This can be quite a relief, especially if you’re feeling pressured to rush into a new home.
However, this does not mean there is smooth sailing ahead. The U.S. just overcame a rather contentious presidential election, and with a new administration comes new sets of reforms and initiatives. Presidential elections can cast some implications on a great many things. Just four weeks after Mr. Trump got elected, 30-year fixed mortgage rates jumped to over a half a point (0.50%). It is also noteworthy that for the first time since 2016, rates were over 4% before settling back down around 3.5% by mid-2017.
Another factor that casts a shadow on mortgage rates and home-buying ability is the prediction that the Fed will raise rates before 2017 is out. No doubt some financial experts will forecast home loan interest rate increases to around 5% by the end of 2018.
What the new administration might bring
Whether we like it or not, our economic policies and reforms are directly affected by politics. With Mr. Trump elected and the two houses controlled by the Republicans, tax reform is in the air. There is no need to fret, however, as it may take the Trump administration and congress to enact its tax and mortgage market reforms.
For now, here are some possibilities the Fed rate hike brings:
- Homeowners with fixed-rate mortgages have nothing to worry about, as the rate is already set.
- Homeowners with adjustable-rate mortgages might see their monthly payments slowly increase over the following months, but that depends on how often the rate resets. Those who are worried might want to consider re-financing into a fixed-rate loan. The same advice goes for homeowners with a home equity line of credit.
Don’t let fed rate hikes stop you from buying a home
As I have noted before, home-buying is a process and a successful conclusion involves many factors. If you are well-prepared, with financing already lined up, don’t let higher mortgages rates stop you. Although interest rates have increased, they are still at the lower end of the spectrum. Take advantage before this historically low mortgage rate era ends.
For more information about mortgage rates, get in touch with me today or call/text me at 760 622 5087.