The Federal Reserve has maintained a near-zero benchmark interest rate since 2008, but that all changed this past December when the Fed announced a .25% increase. The increase was welcomed by many as a sign that the recession is a thing of the past. While the Fed’s plan to gradually tighten the cycle over the coming months will prompt a slight rise in mortgage rates, financial professionals predict that the housing recovery will stay steady. Here are the three key takeaways realtors should keep in mind as they advise their clients throughout the New Year:
The Interest Rate Is Still Low
Technically, the rate hike won’t directly affect consumers. The Fed Rate is the number used to calculate the rate at which banks may borrow from the Fed. At the moment, the rate is still low in comparison with previous years. Even with moderate increases in the coming months, it shouldn’t affect overall interest rates too drastically.
The Fed is expected to raise the rate approximately three to four times over 2016 in similarly small increments. The rising rates may seem to be a cause for concern, but it’s important to remember that the rate has historically hovered around 3.3 to 3.5 percent. The most recent increase as a result was 0.25% to 0.5%.
Many are wondering how the rate hike will affect mortgages. The good news is that mortgages are long-term debts, and they won’t be affected too much by Fed rates. Rates on new mortgages are expected to rise by only half a percentage point. In practical terms, this means that the borrower on a mortgage of $60,000 at 4.5% can expect to pay about $30 extra dollars per month — hardly enough to break the bank.
Many homeowners are also wondering if it’s too late to refinance. Thankfully, there’s still more than enough time. Borrowers currently operating with a 5-6% interest rate are free to renegotiate for a more favorable number, but should consider doing so before the next hike comes along.
To Buy or Not To Buy?
The adage of “buying when it makes sense” still holds true. Clients may express an interest in holding off to see if the numbers drop back down again. They may also want to jump into a transaction they’re not ready for to lock in the current rate. Obviously, neither of these strategies are particularly sound. Many realtors are advising clients to use their life circumstances, rather than volatile market conditions, to make their decision.
Working with Lakeside Title Company
The Lakeside Title team is proud to work with realtors and housing professionals throughout Washington, D.C., Maryland, Northern Virginia, and southern Pennsylvania to facilitate smooth and efficient property transactions. We provide residential search and resale services, title insurance, 1031 exchanges, and more. Visit our homepage to learn about our comprehensive suite of services.