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The Federal Reserve’s (the Fed) actions indirectly impact the prices you pay for gas, rent and even your groceries. For years, the prospect of a higher national interest rate has loomed over prospective homebuyers. Now that the Fed has decided to increase the federal interest rate in December of 2017, something that had not happened since the 2008 financial crisis, it’s important to understand how recent and future rate increases will affect mortgage rates.

Mortgage Interest Rates

We’ve already begun to see an increase in residential mortgage interest rates. The rate for a 30-year fixed mortgage hit 4% in 2017. Some analysts are projecting we could reach the 4.5-5% range in 2018. In other words, the longer buyers wait, the more expensive it may become to purchase a home.

There are several reasons for this, but one of the biggest is the federal funds rate. If the Fed thinks prices are rising too quickly, they raise interest rates. The Fed lowered the federal funds rate to stimulate the economy during the 2008 recession. That lowered interest rates and propped up the economy.

Whether you’re looking to purchase or refinance a mortgage, rates are relatively low at this point, historically speaking. If you’re on the fence, this is a great time to lock in a rate.

Refinancing and Adjustable Rate Mortgages (ARMs)

Many homeowners with adjustable rate home equity lines of credit may be affected. Unlike an adjustable rate mortgage, home equity loans will reset immediately rather than once each year. While it won’t be a drastic change in 2018, those concerned with the escalation of rates might want to consider converting the balance into a fixed rate option will rates are still relatively low.

HELOC Rates

Mortgage rates are not directly impacted by the federal funds rate, but the interest rate you can obtain on a home equity line of credit (HELOC) is. However, there are ways to manage home equity debt in an environment of rising rates. One option is to refinance into a fixed-rate home equity loan.

We understand that every financial situation is unique. No matter your situation, you can speak with a Licensed Loan Originator who can go over your scenario and give you the best possible options to help you out in 2018.