The Fed met Wednesday to increase interest rates. Interest rates have been at an all-time low for the past seven years. This is the first time we’ll see a hike in rates since the housing crash that began in 2008. So what does this mean for consumers and potential home buyers? Are buyers expected to see an increase in their mortgage rates? Is it still a good time to buy? Here is what The Fed hike could mean for you.
Home buyers should not panic. The Fed increased interest rates by only 0.25% this time around. Since we have not seen such of an increase in nearly a decade, we have to take a look back a few years prior to the housing crash. In the early 2000s, after the tech boom, the Fed dropped interest rates to 1%. By the summer of 2004, they began to raise it by a quarter of a percent. At the time, 30-year fixed-rate mortgage were at 6.3%. After four months, the mortgage rates dropped to 5.7%.
Should we expect a repeat of 10 years ago? To be honest, it’s hard to tell, it was so long ago. We can expect to only see a small increase in mortgage rates. Mortgage lenders have been anticipating this hike for months and have already calculated mortgage rates to embrace it. If mortgage rates were to mirror interest rates and increase by a quarter of a percent, a $200,000 mortgage monthly payment of $944 would increase by $30 to $973. This is hardly anything to worry about.
The Federal Reserve is expected to continue increasing interest rates in the future, next predicted date is this spring. What does this mean for home buyers? To obtain the best mortgage rates, potential buyers should act now before spring comes. After the initial increase in the summer of 2004, it took three years for interest rates to go from 1% to 5.25%. This does not mean The Fed is expecting to increase rates by this much, but with a steady economy, one cannot be too sure. Everything The Fed does in regards with interest rates should be taken with a grain of salt. There is no guarantee that a small rise in interest rates will cause mortgage rates to bump up. The Fed influences only short-term rates, interest rates borrowers pay for 30-year mortgages reflect longer-term rates.