Worried about the recent Fed rate hike?
You have a right to be. And unless you’ve been living under a rock you would have heard that they raised rates.
By 0.25% to be exact.
After 3 years of zero rate increase, they made that move to suppress some of the chaos around the economic crisis.
Now, Fed rate hikes don’t directly affect mortgage rates, so then why are mortgage rates influenced by this particular hike?
That’s because mortgage rates are based on movement in the bond market, and bonds had lost a good amount of ground every day for 8 straight days in the month of March alone.
Ouch, talk about feeling it where it really hurts.
And if interest rates continue to climb, you can expect even higher mortgage rates too.
So what does higher rates mean for the Housing Market?
A lot.
Let’s jump into how it can affect you, the potential home buyer, and discuss a few things you can do about it.
Fed Rate Hike: It Is Only The Beginning of Rising Rates
2020 and 2021 saw a red-hot housing market fueled by record low- mortgage rates.
Now the Feds indicated this is only the first hike for 2022, this means more will come before the year ends.
It is expected that the Feds will raise the rate at each of its remaining six meetings this year. Consider that if all of those moves are quarter-point hikes, the rate could reach a range of 1.75% to 2% by the end of 2022, the highest since 2019.
The rate would be even higher if any of the rate changes are a half-point or more.
This may definitely affect how mortgage rates spike or drop over the next few months.
Mortgage Rates Could Go Either Way The Rest of The Year
Now, experts have weighed in on this matter which is of concern to a lot of potential home-buyers.
The thing is, raising rates in the past did not always result in higher mortgage rates.
In fact the opposite occurred many times. Additionally, the Fed did share that a rate would most likely happen so the entire market including mortgage brokers and companies, had time to adjust to the event.
The Fed rate increase affects everyone differently, so beware. Rates should not be the only factor that drive you when you’re ready to purchase a home, although it is important.
If you’re in the market to purchase or refinance, you should keep abreast of what is happening in the market so you don’t get blindsided by rate hikes.
Higher Mortgage Rates Could Negatively Affect Your Purchasing Power
Higher rates mean you could find yourself priced out of a particular housing market.
Let’s say for example you were pre-approved for a mortgage prior to the rate-hike, you may now find that you’re ineligible for the same maximum loan amount after the mortgage rates rise.
Worse yet, it could also mean that your interest rates for borrowing could go sky high too!
Additionally, rising rates could mean steeper monthly payments for the home buyer.
Take a look at this graph from NerdWallet which aptly demonstrates how a rate hike affects your ability to purchase the home you desire:
If you have already signed a contract to buy a home and have locked an interest rate, you’re in good shape. The lender can’t raise your rate.
But if you’re shopping for a home or plan to this year, mortgage interest rates might be higher by the time you get a purchase offer accepted. You can’t lock an interest rate until you have a contract to buy a home.
If you have an adjustable rate mortgage or home equity line of credit (HELOC), it will likely rise as well. The actual interest rate offer you receive is also based on the individual lender, the type of asset securing the loan and your credit profile.
Higher Mortgage Rates Could Help You Save More Money
I know it sounds counter-intuitive that higher mortgage rates could help you save more money, but let’s look at this scenario.
When you’re forced to pay more money on loans and home insurance, you may likely spend less and save more at critical times like this.
This gives you an advantage when the time comes to spend your hard-earned money.
There are a few ways to go about helping you save money:
- Shop around for a cheaper mortgage interest rate
- Don’t pay for home insurance twice
- If possible, make lump sum payments
Once you have a few dollars to sock away, put in a separate account and do your best not to touch it.
Don’t be Defeated by the News
It can seem overwhelming that all this is going to nought, that your plans to own, that the biggest financial decision you may ever make seems to be slipping away, don’t be discouraged.
There are still many options for you to look at.
Here Are Some Tips That May Work For You
Speak to your mortgage officer – they’ll break down for you all that has happened within the market and give sound financial advice
Increase your budget and lower your standard – no, your dream to live in your ideal neighbourhood and all that comes with it is not dead; however, it’s better to work with what you have than to have nothing at all.
Shop around – don’t take the first offer that you get from a mortgage broker, take time to see which mortgage lender can give you the best interest rate for your hard-earned money.
If you want to grab that home or refinance before those mortgage rates hikes come again, now is the time to get on board.
Not sure how to manage it all?
We are here to help.
Don’t be overwhelmed, contact us and schedule a free call with us and our agent Cory will be happy to help you clear any misconceptions and make the right financial choice for your dream home.
