What Recent Fed Rate Hike Means to Homebuyers

Keelin Billue Gubbels Interest Rates, News

On December 16th, the Federal Reserve raised the benchmark interest rate .25%.  This should not cause home buyers to panic about mortgage rates. 

Home mortgage rates are determined by the market and are always changing.  Many factors influence the financial market and your interest rate is not determined by any single factor.  You are borrowing money, so your interest rate offered by a financial institution is based on supply and demand.

Screen Shot 2015-12-16 at 9.54.43 AMIf you look at recent history, mortgage rates don’t closely follow this rate. In the early 2000s, the Fed dropped its benchmark rate to 1 percent and began raising it by a quarter percent in the summer of 2004. At the same time the benchmark rate went up, a 30-year fixed-rate mortgage dropped from 6.3 percent to 5.7 percent. Even when the Fed increased the rate several points in the summer 2006, the rate on a 30-year fixed rate mortgage only went up less than half a percentage point.

“Keep in mind the Fed hasn’t raised its benchmark rate in almost a decade,” explains CFS’s Joon Choi.  “It’s difficult to predict how the market will react to such a momentous change.”

The Mortgage Bankers Association is predicting the interest rate for 30-year fixed-rate mortgage will be around 4.8 percent at the end of 2016, that’s an increase of less than one percent.

If you are on the fence about buying a home or refinancing, perhaps you should get on it before mortgage rates eventually do go up.

No matter how this affects mortgage rates, Chicago Financial Services will be on top of it and continue to offer the best rates.