Thinking about buying a home this year? There are a few things you should consider before you pull the trigger – including how the current economy could affect your house hunt. This post will explain how Federal interest rate hikes may impact your buying power, and what you can do to set yourself up for the best possible outcome.
What is the Federal Interest Rate?
The federal interest rate is the rate that banks use when they lend each other money. It’s variable, and it has a major impact on a lot of different facets of the US economy. For example, it affects people’s ability to obtain credit, production and business operation costs, the affordability of goods and services, and even (you guessed it!) mortgage rates.
What happens when the Federal rate changes?
In general, when the Federal rate goes up, other rates – like credit card and mortgage interest rates – soon follow. The opposite is typically true when the Federal rate goes down. So what’s happening with the Federal interest rate in 2017? It’s already increased twice this year and is expected to increase a third time.
Impact of Federal rates on mortgage rates:
Thanks to these Federal rate hikes, mortgage rates are also on the rise. Freddie Mac data shows that 30-year fixed rates hit 3.91%, up from 3.54% a year ago. And if the Feds do initiate another hike this year, as predicted, you can expect to see rising mortgage rates again.
What does that mean to buyers?
If your interest rate increases by even a quarter of a percent, you’ll have significantly less money to spend on your home. Because of this, experts agree that it’s best to act sooner rather than later to get the best rates and take advantage of the most purchasing power.
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