After the economic downturn of 2007-08, the Fed took drastic measures to bolster the economy, such as reducing the price banks pay to borrow money to near zero, which in turn lowered borrowing costs for homeowners, among other things. For the first time in nearly a decade, the Federal Reserve approved a quarter-point increase in its benchmark lending rate earlier this week.
What does this mean for homebuyers who plan to finance the purchase of a home with, for example, an adjustable-rate mortgage or a HELOC? Although interest rates will not be skyrocketing overnight, they are expected to start climbing gradually, which over time will make buying a home more expensive.
Also, the word on the street is that the conventional 30-year mortgage rate will rise in 2016. If you are already locked into a 30-year fixed mortgage, you needn’t be concerned. However, since most adjustable mortgage rates are reset once per year, if rates rise multiple times before your next reset, you could end up paying more. Another point to keep in mind is that while a rate increase of .25% may seem small and its impact on a monthly mortgage payment may appear minimal, over the life of a loan these increases can mean tens of thousands of dollars being transferred from the homeowner to the lender. That’s not insignificant.
So what does all of this mean in a nutshell? Now is the time for all prospective buyers to begin paying attention to lending rates. Want to take advantage of what are still very attractive rates? Contact my office today to begin your home search. We’d be more than happy to help you find the home of your dreams.