The Federal Reserve announced recently that it will be raising the interest rates on short-term debt. If you’re a homebuyer, you may be concerned about how this may impact a current or future home purchase. This information may help.
Why the Federal Reserve chose to raise rates
The Federal Reserve had avoided raising rates over the last few years due to the economic crisis. The economy has since improved and strengthened. This current increase in rates is likely to be one of many small increases over the
next year.
What this means for mortgages
The rate increase directly applies to short-term debt. Mortgages actually fall under long-term debt, which the Federal Reserve does not have direct control over. Mortgage rates are determined by Mortgage Backed Securities. Thus, they are influenced by
Wall Street.
Will mortgage rates increase? This is still yet to be seen. In the past, an increase in short-term debt rates has not always been matched by an increase in mortgage rates. However, Wall Street is surely paying close attention to what is going on and there is the potential for mortgage rate increases.
For home buyers
Current home buyers may notice shifts in the interest rate from day to day, or even multiple times throughout the day. It may even be difficult to lock in rates. If you are a home buyer, it may be best to find a mortgage and lock in your rates sooner rather than later. Additional Federal Reserve rate increases next year will only lead to additional questions on whether mortgage rates will increase as well.
Overall, mortgage rates are still historically low. In many markets, home prices are on the rise. If you’re waiting to buy a home, you’ll either see home prices continue to rise or the mortgage rates rise. In either case, the cost of home ownership appears to be increasing with time. So, rather than waiting to buy a home, your best bet may be
to buy now.
Suzanne Plewes is a Broker Associate at RE/MAX Alliance in Loveland. If you have questions regarding real estate, please write to 750 W. Eisenhower Blvd., Loveland, CO 80537, call 970.290.0373 or e-mail [email protected].
