There has been a lot of talk about interest rates in the last few weeks because we’ve seen a solid 1% jump over the course of a month. I figured we should find out from the experts as to what is going on and what we can expect moving forward.
Matt Nader, Vice President of Bay Capital Mortgage, shares his take on the effects of an interest rate increase by the feds:
There is a misconceived notion that the Fed’s increase in the overnight discount rate has a direct correlation to long term mortgage rates, but this isn’t the case. The overnight discount rate directly effects short term rates; such as credit cards, auto loans and home equity lines of credit. However, mortgage rates have been increasing since the election. The reason behind the increase in rate is due to the fact that the economy is starting to strengthen, therefore bond yields are increasing which is a direct correlation to mortgage rates. Since the election, there has been a sell-off in the treasury market (bond market) and equities (stock market) have significantly increased.
What does this mean for next year?
Mortgage rates will most likely continue to increase throughout 2017 as long as the economy continues to strengthen. Therefore – it is time to speak to a mortgage lender, figure out what you are qualified to purchase, more importantly figure out what price range you will be most comfortable in in regards to monthly obligation. An increase in interest rate will skew your comfort level in regards to purchase price, meaning if rates increase you may have to lower your purchase price to keep your target monthly payment.
Vice President of Bay Capital Mortgage
The Matt Nader Group