The Fed Raises Interest Rates
As expected, Federal Reserve Chairman Jerome Powell on Wednesday announced a modest benchmark interest rate hike of between 1.5 percent and 1.75 percent amidst continued optimism over economic growth in 2018.
The Fed called for a .25 point increase, and a fed funds rate of 1.63 percent, at the conclusion of the Central Bank’s two-day Open Market Committee meeting. The new benchmark rate is the highest since September 2008, near the beginning of the housing crisis.
Mortgage Rates to be higher over time
The increase of the Fed rate puts pressure on mortgage interest rates, which often follow the lead of the 10-year Treasury bonds (“T-Bills”).
Mortgage rates were essentially unchanged this week in Bankrate’s survey of large lenders.
The benchmark 30-year fixed-rate mortgage increased to 4.55 percent, up from 4.54 percent last week. Despite the wild swings in the financial markets, mortgage rates have barely budged over the past month; the average 30-year fixed has moved calmly between 4.51 percent and 4.59 percent since mid-February.
What this means for mortgage applicants
If you’re looking to buy a home or refinance, be aware of changing mortgage rates. Some experts predict rates will hit 5 percent in the next year or two.
The benchmark 30-year fixed-rate mortgage rose this week to 4.55 percent from 4.54 percent, according to Bankrate’s weekly survey of large lenders. A year ago, it was 4.24 percent. Four weeks ago, the rate was 4.59 percent. The 30-year fixed-rate average for this week is 0.04 percentage points below the 52-week high of 4.59 percent, and is 0.60 percentage points above the 52-week low of 3.95 percent.
The 30-year fixed mortgages in this week’s survey had an average total of 0.33 discount and origination points.
Over the past 52 weeks, the 30-year fixed has averaged 4.18 percent. This week’s rate is 0.37 percentage points higher than the 52-week average.
The 15-year fixed-rate mortgage rose to 4.01 percent from 3.98 percent.
The 30-year fixed-rate jumbo mortgage fell to 4.43 percent from 4.46 percent.
At the current 30-year fixed rate, you’ll pay $509.66 each month for every $100,000 you borrow, up from $509.06 last week.
At the current 15-year fixed rate, you’ll pay $740.19 each month for every $100,000 you borrow, up from $738.69 last week.
Be Prepared for Higher Costs
For home-buyer’s in 2018, it’s essential to keep in mind how rising interest rates affect your ability to buy.
No matter how well you prepare, you can never predict what may happen after you move into your home. You may need to make extensive repairs or find that the costs to maintain the home are higher than you anticipated. It’s always a good idea to have a buffer in your emergency fund just in case you do find your expenses are higher than you had originally budgeted.
If you ever need extra money down the line and have built up some home equity, you can always consider taking advantage of a home equity loan program or a home ownership investment.
Even if you haven’t purchased a home yet, prepare a budget for monthly payments now and one for possible rate increases. If you go with a variable rate mortgage, make sure to check all communication from your loan company to ensure you understand how much warning you’ll get for possible rate increases. Being prepared ensures that you can afford to stay in your home no matter what happens.