By now, many of us have heard through news or advertising that a small change in mortgage rates can make a big difference. In Marin County a home price is a big consideration when selecting real estate in this most desirable market. Interest rates will also be an important consideration, particularly for first time home buyers on a limited budget.
Will a 5% mortgage rate make a substantial difference in the price of your new home? What about your monthly payment? Some experts believe that change won’t be noticeable until the figure rises to 5%.
Interest Rates are Still at a Record Low
Interest rates have been 3.5-4.5% over the last 5 years, compared to 18% or more in the early 80’s. Today, we are at 4.2%.
What Will It Cost You if Mortgage Rates Climb to 5%?
Today, the interest rate for a conventional mortgage (maximum mortgage of $636,150 in Marin) is 4.2%. If the rate increases by a total of 1% (to 5.2%), your monthly payment would increase $60 for each $100,000 of your loan.
What Will Happen to Mortgage Rates if the Fed’s Interest Rate Increases?
The media is filled with concern about the effect of the Federal Reserve policy on interest rates. Is this concern justified? The recent history of mortgage interest rates tell a different story. Here is an expanded view of what happened:
- Over the past 17 months, interest rates have remained LOW: between 3.4 and 4.2%. These are great rates!
- When the Fed raised their rate by 0.25% in December 2015, interest rates WENT DOWN!
- When the Fed raised their rate another 0.25% in December 2016, interest rates went up from about 3.5% to 4.16%. However, the increase in mortgage rate went up BEFORE the Fed’s increase in December. In fact, the rate went up about the time of the presidential election.
- For three months after the Fed’s increase, the mortgage rate has held steady at about to 4.2% (through March 6, 2017).
The Fed rate increased again by 0.25% on March 15, 2017. The next day the average 30-year mortgage rate went up to 4.3%, but today (March 23) it is down to 4.23%.
What Does This Mean?
Over the last year, mortgage interest rates have not depended strongly on the Fed’s interest rate. There must be other economic and political factors in play. Don’t buy all of the media concern about Fed interest rates.
The Mortgage Bankers Association, Fannie Mae, Freddie Mac and the National Association of Realtors are all projecting that mortgage interest rates will move upward in 2017. Increasing interest rates will definitely impact purchasers and may stifle demand.” From Simplifying The Market.
Here is a clear and simple discussion of the link between the Fed interest rate and mortgage rates. Here is a simple Summary: “The Federal Reserve has no direct connection to U.S. mortgage rates whatsoever.” The indirect connections through the national inflation rate and the bond-secured mortgage market, influence the direction of mortgage rates.
“Mortgage rates are made on Wall Street.” This is where politics and economic pressure take hold.