The long-awaited rate hike from the Federal Reserve is here. The Fed voted unanimously this week to raise its federal-funds target rate to a range of 0.5% to 0.75%, an increase of a quarter percentage point. This rate directly affects only banks, but banks pass costs on to their customers — which means mortgage borrowers will most likely see mortgage loan interest rate increases before long.
But before you resign yourself to paying rent for the next 30 years, read on. In a few important ways, the rate hike can be seen as a good thing — even for people who are trying to purchase a home.
Here are some silver linings:
- Small, gradual increases
For now, the federal-funds target rate is only a quarter percentage point higher. While additional increases are forecasted for 2017, rates won’t be jumping up a full percentage point overnight. Hopeful buyers still have some time to make a choice without panicking.
- Economic growth
The Fed raised rates in response to economic improvements, including a lower unemployment rate and increased wage growth. Having a job and steady income are prerequisites to owning a home, and a strong job market benefits everyone.
- Higher savings yields
Along with consumer loans, interest rate increases affect savings accounts and investment returns. While your debts might cost you more in the long run, your investments will earn more, too. For some savers, the difference will make up for any loss.
- Slower home price increases
Higher mortgage loan interest rates lower housing affordability. If demand is affected by rising rates, home prices can’t keep skyrocketing — so even if your mortgage rate goes up, you might be able to buy for less.
- Looser mortgage lending requirements
If rising rates cause a decrease in mortgage applications, lenders will look for ways to increase volume. That means it could become easier to qualify for a mortgage and buy a home.
Home is forever
Interest rates rise and fall, but finding a place to put down roots is priceless. If owning a home is something you value, one of our Alpine Mortgage Advisors would love to talk with you about your options and our mortgage process. We’ll crunch numbers and get a feel for your financial picture — with no cost or obligation. Contact us for your free consultation.