Should I Be Concerned About Rising Mortgage Rates?

Should I Be Concerned About Rising Mortgage Rates?

On June 13th, the Federal Funds Target rate was officially raised by .25 percent. This increase marks the second time interest rates were raised in 2018 and experts expect another two increases this year.

The rate increase was prompted by optimistic feelings about the general state of the economy. The Fed pronounced the economy to be rising at a "solid rate" and claimed that inflation rates are close to their target goal of 2 percent. Most notably, unemployment rates have dropped to just 3.8 percent in May, 2018, tying with April 2000 for the lowest rate since 1969.

Is it a good time to buy a house? Should you choose an ARM or a fixed-rate mortgage? If you're a homeowner, should you be taking any action now? So many questions-and we've got answers! Read on for what you need to know about the rising interest rates and what it all means for you.What you can expect for the rest of the year.

Here's what experts anticipate for the remainder of 2018:

More market increases.The fed is expected to raise interest rates again at their meetings in September and December. A healthy economy that keeps growing. With unemployment rates at record lows and the recent tax cuts keeping the economy strong, business is booming across the country. Hiring is up and firing is down. More homeowners choosing to stay put. In 2017, U.S. homeowners gained $1 trillion in equity. This means most homeowners are now sitting on newfound wealth. It now makes more sense for them to tap into their home's equity to fund renovations on their homes instead of going through the hassle and paying the costs of a move. Cash-out refinances, in which the homeowner takes out a bigger mortgage and pockets the difference in cash, will be especially popular. When homeowners stay put, it can create a tighter housing market which can make prices rise.

Why a healthy economy means higher mortgage rates?

When the economy is thriving, inflation increases. This causes investors to seek higher returns for their investments. The only way to keep investors interested in mortgage bonds when the economy is booming is to raise interest rates on mortgages.

The Feds want to keep inflation stable so that it doesn't spike suddenly and trigger a market panic which can lead to a crash or a recession. By gradually increasing interest rates, they can keep the economy growing at a steady, stable pace.

What do mortgage rates look like now?

Mortgage rates have already surpassed predictions set by major housing agencies at the end of 2017. 

If you're in the market for a house

House prices have soared over the last seven years. According to the National Association of Realtors, the average price tag for a home is now $264,800, up by almost 100K from 2011. When you adjust these numbers for inflation, house prices have seen a 33 percent increase in seven years.

If you're house-hunting now, don't pay more for your mortgage than you absolutely have to. Housing agency Freddie Mac urges new-homeowners to shop around before choosing a mortgage.

It's also a good idea to consider an adjustable-rate mortgage (ARM). ARMS are 30-year loans that have fixed rates for a specified amount of time, usually 3-7 years. Rates will then change according to national rates. When mortgage rates are rising, ARMs are usually priced more reasonably than fixed-rate loans.

The general consensus is rates are only going to continue climbing and you want to get the best interest rate for your mortgage.

If you're a homeowner

Consider refinancing your existing mortgage to one with a lower interest rate.

Between August of 2017 and 2018, mortgage interest rates have climbed nearly one percent. Some economists are predicting rates could increase by an additional one percent between now and 2019. There is a wide belief the Federal Reserve will increase rates at least one more time during 2018 and anticipate these rates will go into effect in December.

While a homeowner who is considering refinancing their mortgage should not be entirely driven by increasing rates, there are circumstances which make sense for considering refinancing, even during a period when rates are on the rise. Here are some of those situations:

Cash out for investing or spending — In some cases, it may be worth considering using the equity in your home. For example, if you have a child headed to college, it may be less expensive to refinance and take cash out of your home to pay for their education outright than it would be to take out student loans. For a person in their 40s who has an under-funded retirement plan, their home equity could provide a needed boost to their retirement savings. Before using the equity in your home in this manner, make sure you speak with a qualified financial planner and make sure this is the right way to meet your needs.
Lowering or fixing your monthly payment — For a homeowner with an adjustable rate mortgage, particularly if they are facing a rate increase within the next three to six months, refinancing into a fixed rate may make sense. Remember, there are cases where this is not sensible, for example, if you intend only to remain in your home a couple of more years. In some cases, it may be possible to lower your monthly mortgage expenses by refinancing. Before making this decision, however, you will have to understand the costs of refinancing and ensure it makes sense. For example, it may not make sense to refinance a mortgage that has 20 years remaining into a new 30-year mortgage even if the rate is lower.
Eliminating Mortgage Insurance — Fortunately, The federal Homeowners Protection Act (HPA) has changed how a mortgage lender deals with the removal of private mortgage insurance (PMI). Some homeowners may still have less than 20 percent equity based on their loan term, however, so it may be necessary to refinance to remove this payment. Keep in mind, the amount you save every month may not be enough to warrant a refinance, particularly if your loan costs wind up exceeding what your premium for PMI includes.

For those considering refinancing their current mortgage before the rates increase again, it could be beneficial to review the types of mortgage programs and rates offered by CDC Federal Credit Union and contact a member services representative today.

Everyone’s circumstances are different, and for some, refinancing is the answer while others may benefit from a personal line of credit. We can help you find the right solution .



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