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Fed Hikes and Mortgages
If you are in the market for a new house – or if you are selling your current home – you probably have been watching the Federal Reserve System’s decisions on raising interest rates. After years of inaction on rates as the economy recovered, the Fed has raised rates and indicated that additional rate increases are coming.
Since Fed rates are a major factor in determining mortgage rates, buyers and sellers are wondering how this action will affect home sales. U.S. News and World Report suggests some ways the rate hikes will matter to the housing market.
First, though, there is no need to panic. The impact of the Fed hikes probably won’t be as dramatic as you think. Fed rates are one factor in setting mortgage rates, but mortgage rates move up and down all the time, regardless of whether the Fed is taking action. You still will be able to find a mortgage, but you might have to shop around a little more.
On the other hand, if you are serious about buying, it might make sense to move relatively quickly. While each Fed hike is small, they are cumulative. And they suggest that mortgages will continue to creep up. Mortgage rates, and interest rates in general, are still very low from a historical perspective. But if you are planning to buy, you might want to lock in a mortgage rate sooner rather than later.
After the housing crisis and the recession, many fewer buyers have chosen adjustable rate mortgages. These typically start with lower interest rates that are locked in for a set period – usually five to seven years. However, at the end of that period, the interest rate can increase, sometimes dramatically. Consider how long you expect to remain in your house when you weigh the cost of fixed-rate vs. adjustable-rate mortgages.
In general, remember as you are searching for the perfect home also to take some time to look for the mortgage that works best for you. Mortgage rates differ from lender to lender, and they also differ based on the type and duration of the loan. So decide how much you can afford as a down payment and how much you can afford to pay each month, and start looking for a mortgage that works for you.