Real Estate and Interest Rates
Real Estate and Interest Rates – a Primer
When you buy a home, there are so many decisions to make – what type of house and neighborhood, what amenities are important, and what is your price range? Related to price is what you will actually pay for your house, that is, what will your monthly mortgage payment be? The components of that payment rely heavily on the purchase price of your home, the interest rate of your loan, and the taxes in the community. This article will attempt to demystify one of those pieces – the role of interest rates in your mortgage payment. As you will read, variations in rates can meaningfully impact your monthly payment, and overall cost of your home.
Interest rates effect on mortgage rates
In mid-March, the Fed hiked interest rates by .25%. This move resulted in rising mortgage rates, which almost always occurs, giving the impression that the Fed controls mortgage rates. The Federal Reserve sets monetary policy for financial institutions, which in turn affects the rate they pay in lending money across institutions. When the Fed raises rates, lenders pass along this cost to consumers in the form of higher interest rates on mortgages.
Consumer mortgages are determined based on current market rates and conditions, as well as your individual credit score. The higher your credit score and better your credit rating, the lower your interest rate. Mortgage interest rates are compounded, meaning that every month you are paying on the interest that has accrued as well as the principle of the loan, much like credit card debt.
How do rising interest rates affect me?
Mortgage interest rates affect a prospective homeowner’s purchasing power, i.e., how much house can you afford.
Current interest rate environment – should I buy now?
All indications are that the Fed intends to hike interest rates this year, and the Fed itself has even hinted that it may tick up rates three times by year’s end. Since the election, the rates have gone up almost a full percent. Here is a snapshot of the prevailing Fed watcher’s predictions:
If you are considering buying a new home, the earlier you act, the lower your interest rate will be, given the current professional forecasts for interest rate hikes. The best way to help you navigate the mortgage waters – to find the right mortgage for you – is to contact a qualified mortgage broker. Your Realtor will have a list of brokers that he or she recommend to you.