What Rising Interest Rates Means for your Mortgage

The Federal Reserve’s June meeting is coming up and it is widely expected that interest rates will continue to rise.  This leads to two important questions. Why are experts thinking this, and how could these increases affect current/future mortgages?

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3 reasons why interest rates will increase:

  1. The economy is fairly strong as it stands and consumer confidence is high.  This consistently leads to the Fed feeling more comfortable about rate increases.

  2. Rising inflation.  Lower rates allows for greater buying power which leads to higher inflation.  This means that the opposite typically holds true so when inflation rises, the Fed takes note and considers following.

  3. The budget balance isn’t improving.

How interest rate increases affect mortgage rates:

Firstly it is important to mention that this past week saw a 0.16% drop in mortgage’s 30-year fixed-rate.  This is because these rates typically track the 10-year Treasury yield which dropped and then rebounded after a 7 year high.  The drop accounts for a $9.63 drop in monthly payments for every $100,000 in the loan. Which means it would have been a good time to lock in rates.  Now that the current rate update is out of the way, how do the changes in interest rates affect things?

The Federal Reserve’s rates indirectly influence these long-term fixed mortgage rates because of how it can affect the yields on U.S. Treasury notes, but adjustable-rate lines of equity will see more immediate changes.  As a benchmark, an increase (or decrease) of 0.25% would have an associated change in monthly payments of roughly $20 to $22 dollars a month for every $100,000 in the loan.

With all of this in mind, keeping an eye on the right time to lock in a rate on a new mortgage is a smart move.  If you want to hear more about interest and mortgage rates, feel free to contact The CAZA Group or one of our preferred lenders for more information.