MORTGAGE MONDAY How Will Interest Rate Increase Affect Mortgage

MORTGAGE MONDAY How Will Interest Rate Increase Affect Mortgage

You've probably seen on some type of news outlet that there has been an interest rate increase.  Well...what does that actually mean?  The below article is great at explaining!  Need a mortgage lender suggestion?  I can direct you to some great ones!  www.michelleforemanrealtor.com or michelleforemanrealtor@gmail.com.

How Will An Interest Rate Increase Affect Mortgage and Savings Rates?


fed rate hike graphic


Unless you pay no attention to financial news at all (and if not, how did you end up here?), you are aware that the Federal Reserve has finally raised interest rates after seven long years of near-zero rates in an attempt to stimulate the economy. The common prediction was for a 0.25% rate increase, and the Fed followed through as expected.


How will the Fed's actions affect your savings account and/or your mortgage? Based on the Fed's outline of a very measured rise in rates, there probably will be very little effect.


In a theoretical rate hike cycle, banks will increase their mortgage rates to accommodate the change in the Fed's benchmark interest rate and will then have more revenue to pass along to savers as higher returns on their deposits and other cash-based investments such as CDs. In reality, banks will react to demand as much as an interest rate, and the demand can be affected by the psychology of an interest rate hike.


In mid-2004, the Fed's benchmark rate was 1% and a series of 0.25% or greater interest rate hikes began. During the first increment, 30-year fixed rate mortgages actually dropped from nearly 6.3% to 5.7%. After two years of increases, the 30-year fixed rate climbed to 5.25% but the 30-year fixed rate only rose from a low of 5.58% up to 6.68%. Banks do not always set rates in lockstep with the Fed's benchmark. There is actually a better correlation between mortgage rates and 10-year Treasury bonds than there is between the mortgage rate and the benchmark rate.


Consider the dynamics at the moment. Banks are sitting on large volumes of cash and are being hamstrung within the mortgage market by regulatory reforms, while the housing market is improving but still suffers from a mismatch between qualified homebuyers and available homes. A small increase in the benchmark rate is not likely to increase demand by scaring more people into buying when they would not normally have done so — unless the Fed strongly implies that rates will rise at a faster pace than they have let on so far.


Should that happen, there could be a tangible increase in demand and sales as people "settle" for a less desirable home to take advantage of rates. That demand should allow banks to charge higher mortgage rates — but do not count on that happening this time. As of this writing, the announced increases were a straight pass-through of the extra 0.25%, including statements from Wells Fargo and US Bancorp.


Of course, if you have a variable mortgage or any financial product directly tied to the interest rate, you will see the unfiltered effect of that interest rate on your payments.


What about the effect on savers? It's hard to see how it can get any worse, as average CD rates are stuck at 0.3% — just a bit better than sticking your money under your mattress. However, since banks are flush with cash and have plenty to lend, they have little motivation to offer attractive deals to bring in more cash through deposits. The Great Recession led people to maintain a lower level of risk, including greater cash reserves.


In short, you may be able to find a slightly better deal on your money, but it may not be enough to bother with the hassle of moving it to a different bank. As of this writing, there is no major bank announcing interest increases to help savers.


It has been so long since the benchmark rate has increased that people could overreact, but it seems likely that such a small and telegraphed move will have limited impact. It all depends on the Fed's announcement and how they portray this increase and future ones, and whether it meets people's expectations. So far, it seems to meet with approval.


Info taken from http://www.foxbusiness.com/personal-finance/2015/12/18/how-will-interest-rate-increase-affect-mortgage-and-savings-rates/


Joshua Putman Headshot
Author:
Phone: 504-339-9219
Dated: December 21st 2015
Views: 861
About Joshua: Joshua Putman grew up around the world and is now calling Texas home. Serving in the military for mo...

Property Search








RSS Feed

View our latest blog posts in your RSS reader. Click here to access. RSS

Search Blog

Recent Blogs

Selling In The Winter Attracts Serious Buyers - A recent study of more tha
This Holiday Season - Listing your home this winter? 
Dec 2 2016 17359 1 - WALSH FORT WORTH UPDATENew Homes Sta
5 Reasons Why Homeownership Is A Good Financial Investment - According to a recent report&nb

Our Bloggers

Comprar Casa DFW * - 1
Kim Allman - 5
Cara Balderas - 28
Tami Bennett - 45
Jessica Boozer - 18
Rhonda Borgne - 1
Olivia Borowski - 1
Jennifer Boyd - 2
Deborah Boyd - 16
Jamie Brannagan - 1
Annette Bruen - 20
Moira Brunken - 11
Beverly Bryant - 23
Sherry Cabrera - 359
Ana Cantu - 1
Lisa Cardillo - 52
Bob Cardillo - 4
Shea Cargile - 12
Tori Cecil - 3
Lucina Cervantes - 11
Troy Copeland - 11
Gregory Cornett - 2
Angela Cotten - 51
Missie Craig - 12
Greg Cunningham - 2
Leah Ecob - 15
Kristine Edens - 3
Jill Elliott - 99
Laneal Ernest - 9
Nicole Espinosa - 27
Christopher Evans - 1
Heather Feragotti - 8
Mark Fischer - 2
Susan Florsch - 12
Jennifer Flynn - 4
Leslie Fogle - 101
Larry Frassinelli - 6
Chad Gabriel - 58
Malci Gariani - 1
Shalee Garza - 10
Cassie Gillock - 2
Ryan Gonzales - 3
Christina Gonzalez - 5
Wilma Goodwin - 2
William Graves - 5
Sandra Hunt - 67
Bill Hurd - 3
Gary Hutchings - 20
Rachel Jama - 47
Trenton Johnson - 15
Felicia Johnson - 78
Jemi Khan - 26
Leigh Klotz - 5
Amber L Johnson - 6
Michele Lafortune - 22
Wanda Lewis - 2
Mark Linder - 1
Noreen Lodhi - 9
Stacy Lynn Massar - 27
Hiwot Melaku - 1
Jennifer Menting - 17
Mikki Migis - 8
Richard Mikus - 1
Sean Moniri - 21
Naddia Morales - 10
Keith Moses - 9
Mark Mulch - 19
Erick Murphy - 6
Steve Murray - 1
Julie Nicholson - 10
Nikki Okpuzor - 3
Alan Oliver - 7
Kelly Oltmann - 2
Kaysone Orlando - 1
Holli Paddio - 3
Ancy Philips - 7
JP Piccinini - 48
Julie Ann Pickering - 85
Ann-Marie Pope - 2
Joshua Putman - 111
Mimi Rader - 1
Shelia Randolph - 33
Terri Anne Ray - 1
Teneka Ray - 1
Go 2 Girls Realty - 173
Bethany Rowan - 15
Kelly Rumney - 9
Amy Jo Saenz - 3
Linda Scardis - 4
Sandy Setliff - 209
Christine Shannon - 29
Rene Sinclair - 27
Shelby Smith - 3
Bryce Smith - 5
Monica Solkhon - 1
Rodrigo Sotomayor - 16
Brent Stack - 1
Jenna Stanley - 9
Kelley Stubbs - 3
Melodie Sulgrove - 1
Seana Taylor - 205
Mary Taylor - 13
Julian Taylor - 17
Erica Taylor - 40
Angela Taylor - 1
Karla Terrell - 2
Joey Thomas - 2
Jason Todd - 24
Andrea Trimble - 55
Miguel Umana - 6
Staci Van Allen - 12
Diane Velez - 17
Debbie Viverito - 132
Nick Walton - 75
Spring Weeks - 8
Michael Worley - 160
Keisha York - 30
Debbie Zurita - 17

Saved Properties

This is a list of your favorite properties. We will email you if a property is reduced or leaves the market.

Click 'Save' to add a property to this list.

Register / Login

New & returning visitors please enter your information to login.

By clicking 'register' you are agreeing to our terms of use & giving us expressed written consent to contact you.

Questions? Comments? Complaints?

This message will go directly to the head of our team.

Location & Address

JP And Associates REALTORS
6175 Main Street #355 Frisco Texas 75034
Frisco, TX
972-375-9448
4692875503

Other Locations