You may have heard a little something earlier this month about the Federal Reserve and its 0.25% interest hike. As it was only the second time the bank raised rates since 2006, the move made massive headlines.
In addition to raising interest rates, the bank also announced it will do so again in coming months.
The Fed’s decision is an indicator of a strengthening economy, which is pretty good news. However, if you’re in the market for a new home, you might be wondering what this means for you and your wallet.
We’re going to keep it real: If you’re not paying cash money for your home and you’re relying on a mortgage, you’ll be paying more. Although the Fed does not directly control consumer interest rates, we’re expecting to see a rise in mortgage rates as a result.
That said – you shouldn’t panic or abandon your plans to purchase a home. Regardless of rate increases, buying is still in your favor. Here are two reasons why:
Rates are increasing, but they are still well below historic norms, per the Washington Post. Right now, the average rate for a 30-year-fixed-rate mortgage is 4.3%. In November 2011, it was 5% and in February 2011, buyers were dealing with 6% rates.
Even with the Fed’s hikes, mortgage rates won’t reach those levels in 2017. “We anticipate that rates may be 4.5 percent by the end of 2017,” said Lawrence Yun, chief economist for the National Association of Realtors (NAR) told CBS News.
CBS is reporting that lending companies have increased mortgage rates in anticipation of the Fed’s decision – adding $10,541 to the lifetime cost of a typical 30-year mortgage. That might seem like a significant amount … until you look at rental prices.
Let’s look at Greater Atlanta as an example. According to RentJungle.com, the average monthly rent in the market was $1,554 in November. Over 30 years, that comes out to a mere $559,440 (and that does not factor in year-over-year rent increases).
Meantime, the average home price in Metro Atlanta is $275,000. Alright, let’s do some math here. Say you put $55,000 down on a $275,000 home. If you take out a 30-year-fixed-rate mortgage for $245,000 at 4.3%, you’ll be paying $1,395 per month (including estimated property taxes + homeowners’ insurance). Over 30 years, that puts you at $502,200 – and you actually own that property.
News of increasing mortgage rates might sound daunting, especially if you’re a first-time buyer. But as the economy continues to strengthen, this is the perfect time to make moves on a home purchase.