Since 2008, the Federal Reserve has kept the interest rates on bonds and other government-issued securities relatively low. Why? Low rates encourage consumers to borrow and spend money – helping to stimulate the housing and economic markets.
However, now that the economy appears to be on the upswing, there’s been talk in the news of the Federal Reserve raising interest rates. If you’re thinking about buying a house, should you do it now, before rates go up?
Know which Federal rates to watch.
Not all rate increases by the Federal Reserve will have the same impact on mortgages. Before borrowers start frantically applying for loans, keep in mind that even if the Federal Reserve does raise rates on some products, the trickle down to some mortgage products could be small, or in some cases, may not be impacted at all.
If you’re curious as to whether the Fed’s changes will impact a 30-year mortgage, some experts recommend watching the 10-year Treasury note.
“Mortgage rates, which have hovered below 4 percent for much of 2017, are less sensitive to incremental rate increases than to changes in the yield of the 10 year U.S. Treasury note, which stayed low this year even as the Fed rate ticked up,” explained one New York Times article about the speculation of Fed changes on consumer lending.
Less demand could lower home prices.
If the Federal Reserve and lenders’ mortgage rates do go up, potential homebuyers can expect to pay more per month for their mortgage. Some argue that this could lead to less demand, thus lowering the purchase price on homes, as explained in this Forbes article. So in hot markets, like Seattle or Portland, some experts suspect that increased rates could possibly work in the benefit of dedicated house hunters, as there could be less competition.
Little changes do add up.
If you’ve taken a good, hard look at your finances, met with real estate professionals and decided that you are ready to buy a house, then it could be important to consider taking advantage of today’s rates. Remember, even little changes to a mortgage rate – like 0.125 or 0.25% - can have a big impact over the life of your loan.
Here’s one example, as seen in this USA Today article. A 0.125% increase on a 30-year fixed rate mortgage of $200,000 boosts the monthly payment by about $30, or about $390 a year.
Want to know more? We're here to help!
For most of us, buying a home could be the biggest financial decision we’ll ever make. If you’re not ready to commit to one area (or home), don’t have stable income or employment, or are concerned about making your monthly mortgage payment - then you should wait before buying a house, regardless if interest rates are going up or down.
If you are interested in finding out when - and if - buying a house is right for you, then we’re here to help! Your neighborhood loan officer can sit down and discuss some options that might be right for you.