Why you shouldn’t panic about rising mortgage interest rates

Why you shouldn’t panic about rising mortgage interest rates

Content prepared by Towne Mortgage of the Carolinas for Coldwell Banker Howard Perry and Walston

Mortgage rates have been on a fairly steady increase since the presidential election, and for the first time since 2014, rates for a 30-year-fixed-rate-mortgage averaged above 4 percent at the start of the year. In January of last year, the monthly average rate was 3.87 percent, according to Freddie Mac.

Average mortgage rates for a 30-year-fixed mortgage have been below 5 percent since 2010. According to Freddie Mac, rates on 30-year-fixed-rate mortgages averaged in at 4.09 for the week ended Jan. 19. Although rates have been slowly rising into the 4 percent rate, they are still largely considered among historic lows.

For example, if you took out a 30-year-fixed rate mortgage in 1981, you were likely paying a whopping average of 16.63 percent in interest, according to data from Freddie Mac.

In 1991, 30-year-fixed rate mortgages averaged at 9.25 percent interest.

At current interest rates, buyers will pay around $25 more per month in interest compared to a year ago, assuming a $241,000 price and a 20 percent down payment.

In 1981, buyers would be paying around $1,760 more per month in interest under those same standards.

Last month, the Federal Reserve raised the federal funds rate by ¼ a percentage point, signifying the Fed’s confidence in the improving U.S. economy. It was only the second time in a decade that the Fed decided to raise rates, the first time being December 2015.

A higher Federal Funds rate makes it more expensive for banks to borrow money, creating a ripple effect that passes on higher interest rates to consumers.

“[The Fed recognizes] the considerable progress the economy has made toward our dual objectives of maximum employment and price stability,” said Fed chair Janet Yellen in a press release last month. “Over the past year, 2¼ million net new jobs have been created, unemployment has fallen further, and inflation has moved closer to our longer-run goal of 2 percent. We expect the economy will continue to perform well, with the job market strengthening further.”

Yellen also suggested that the Fed plans to raise rates at a faster pace in 2017.

While interest prices are on the rise, many professionals expect that interest prices won’t rise above 6 percent. Laurence Yun, Chief Economist of the National Association of Realtors, predicts that interest rates will rise to 4.5-4.8 percent by the end of the year, and to 5.5 percent by the end of 2018.

“Rising rates are no doubt pinching the family budget of would-be homebuyers. However, as long as the rate rises are gradual such that salaries have time to rise more strongly to mitigate some of the sting of higher mortgage payment, consumers should view these as still historically attractive mortgage rates,” said Yun.

As mortgage rates start to creep up, some mortgage professionals predict the return of more home loan products, such as adjustable rate mortgages, which initially offer lower interest rates.

So what’s the bottom line? Mortgage rates still remain relatively low, and rising interest rates are seen by many as a sign of a strengthening economy.

Curious about mortgage options and how they affect your interest rate? Speak with a Towne Mortgage of the Carolinas loan officer today.

Towne Mortgage of the Carolinas

Content prepared by Towne Mortgage of the Carolinas for Coldwell Banker Howard Perry and Walston

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