What the Interest Rate Increase Means for Your Mortgage Search
As expected, the Federal Reserve announced a quarter-point increase to the federal funds rate as part of its efforts to reduce inflation. Two years ago, at the start of the coronavirus pandemic, rates were cut to near zero. This week’s decision marks the first of several anticipated increases in the coming months.
Although the federal funds rate is not aimed at consumers, the impact of a change typically leads financial institutions to adjust the interest rates they make available for mortgages, auto loans, and credit cards. So if you’re in the market for a new home or are considering refinancing your current mortgage, it’s essential to know how this rate hike could affect your plans.
For those who have already begun the process of applying for a new mortgage, the announcement of a rate increase may have a minimal impact on your plans. The Federal Reserve signaled its plan to raise rates beginning late last year, meaning many lenders have already priced the cost of the increase into their offerings. As a result, there’s a good chance the mortgage payment you have budgeted for will remain unchanged if you expect to close soon.
Since more rate increases are expected, mortgage rates will likely continue to tick up during 2022. Fortunately, they are currently near historic lows. Even with the coming rise in rates, many borrowers will be able to find mortgages well below what homebuyers have experienced in past decades, and refinancing to a lower rate is still a possibility for many. In addition, the trend may reduce competition for homes, offering some relief in home prices for shoppers.
The best approach for any buyer or homeowner is to have a solid plan for your mortgage search. Taking steps to ensure your credit history is accurate and reflects smart financial habits are important in obtaining the best interest rate. Similarly, searching for a lender that can explore all of your options and using an experienced Realtor can also result in substantial savings.
While the news may make inflation and higher interest rates seem like reasons to avoid the real estate market, it’s better to let your specific circumstances determine if it’s the right time to buy. Transitioning to a home that meets your long-term needs with a mortgage you can afford is usually a smart financial move, as is refinancing to a lower rate if you don’t have plans to relocate any time soon.
Despite the downside of higher interest rates, there are plenty of reasons to be excited about the current real estate market. As mentioned, it’s not too late to take advantage of historically low interest rates when buying. Just remember that the sooner you act, the better.
Other strategies, such as reducing the term of your mortgage, making additional principal payments, or considering a renovation loan, can also lead to significant savings if you have the willingness and discipline to take advantage.
Learn why your interest rate is only one of the factors that make a great mortgage by exploring the resources available on our website. Then call to schedule your appointment to get started today.