What impact does the Federal Reserve’s recent decision to raise the fed funds rate have on mortgage rates?
Don’t panic. It’s not too late to get a rate.
Here’s the good news. The fed funds rate only has a direct impact on prime rate-based mortgage products as well as adjustable rate mortgages (ARM’s). These loan types make up only 7 to 9 percent of mortgages.
Impact is indirect on longer-term interest rates, such as a 30-year fixed-rate mortgage. This means long-term mortgage rates are more likely to increase gradually.
There is no doubt we are in a great spot right now. We have a rare combination of a strong economy and historically low interest rates. This combination will not likely last long. If the economy remains strong as is expected, the probability is that long-term rates will continue to rise as the Federal Reserve makes decisions to keep the economy balanced.
Let’s look at an example of how future interest rate increases can impact purchasing power. A family with an annual income of $100,000.00 and $1,000/month in consumer debt can qualify for a mortgage payment in the range of $2,800 per month, which equates to a purchase price of around $560,000.00 if they buy now. If long term rates go up by .5%, this family’s purchase power has been reduced to around $520,000.00. Keep in mind, this does not take into consideration that in most areas, property values are expected to continue rising due to the strength of the economy. Therefore, their price point has been reduced by increased rates. However, in addition they will get less house for their money due to property value increases.
If you are considering buying and want to maximize your purchase power as well as the amount of home you get for your money, now may be the perfect time to strike. If you have any questions or would like to explore the possibility of buying and/or selling, please contact Chris Woods at SWBC Mortgage, 615-506-1050 or at firstname.lastname@example.org. Recent client reviews are available at https://www.facebook.com/pg/Woodsmortgage/reviews/?ref=page_internal
As always, I recommend that you talk with a lender before you start looking at houses just to be sure you credit hasn’t been tampered with. That way you have time to straighten out any issues that might come up …
… “You’ve got a Friend in Real Estate”
Jarod Tanksley 615.403.8265
Brentview Realty 615.373.2814