After months of speculation, the Federal Reserve has raised interest rates. What does that mean for you? Here’s a great overview from Spencer Lewallen and Pinnacle Capital Mortgage:
First, let’s give a little background on the Fed:
The Federal Reserve Board (the Fed) controls rates on overnight loans from bank to bank or from the Fed to member banks. The Fed adjusts rate policies to maximize employment and stabilize consumer prices. In this case, the Fed has seen some economic improvement. By raising rates, they are attempting to keep the pace of growth and inflation under control.
Two important things to remember:
– The Fed can influence, but does not directly set, most consumer rates.
– The Fed’s rates are short term and don’t always impact longer term rates, such as fixed-rate mortgage loans.
Here’s how the change may affect homeowners and home buyers:
- Interest charged on HELOCs (home equity lines of credit) will likely rise. If you have one, you may want to prepare for an increase in your monthly payment. In most instances, this increase will be small. If concerned, you may consider consolidating equity financing with a new, single, fixed-rate loan.
- Mortgage rates rose back in November after the elections, so this Fed move is largely factored in. In reality, fixed mortgage rates respond more to the economy and inflation than Fed actions, and investors anticipated this change.
As is always the case, we can’t say for certain what will happen next. Mortgage rates are always a function of investor sentiment and evolving economic indicators. Though the Fed indicated further rate increases are likely in 2017, changes remain speculative and will be based on the state of the economy and inflation at the time.
It’s important to remember that even if mortgage rates rise further, they are still low by historical standards. If you’ve been making plans, in all likelihood, they’re still viable.
For some additional perspectives, read the articles below:
Fed Raises Key Interest Rate, Citing Strengthening Economy
(New York Times)
Fed Raises Rates for First Time in 2016, Anticipates 3 Increases in 2017 (Wall Street Journal)