Fed Rate Hikes: The Impact On Real Estate Mortgage Rates
The federal funds rate or fed funds rate for short is the interest rate that banks and credit unions use to lend to other banks and credit unions, on an uncollateralized basis for overnight loans. The Fed raised the fed funds rate in December by .25% to .75% in a move that was expected by most economists. For the year 2017, most economists predict 2 to 3 more increases of the fed funds rate with a total increase of .5% to 1% more. There is a popular misconception that the fed funds rate directly influences mortgage rates, it does not.
Since we are talking about FishHawk Ranch Real Estate and real estate in general, what does this mean for real estate mortgage rates, buyers and sellers?
To be clear, the Fed does not set mortgage rates, they set the fed funds rate. The fed funds rate is a short-term rate and is different from a mortgage rate that is a long-term rate. Mortgage rates typically follow long-term bond rates, such as the 10-year U.S. Treasury note. For the most part, longer-term rates try to anticipate future rates and usually adjust before the Fed makes any type of fed funds rate move. A good example of that is that since the election the fed funds rate has been raised .25% and mortgage rates have roughly risen about .60% to a current level of around 4.25%. Keep in mind that if you are shopping for a mortgage the actual rate you may get depends on a number of factors.
While nobody knows for sure what mortgage rates will do, some economists are predicting mortgage rates to be in the low 5% range by the end of 2017. Historically still a great rate but a far cry from the 3% we were seeing two years ago.
How does a mortgage rate rise impact your payment?
The average home for sale in FishHawk Ranch is about $350,000. For a simple calculation let’s say you were to get a $300,000 fix rate mortgage for a period of 30 years. With a 4% mortgage rate, your monthly principle and interest payment would be $1432.25. At 4.5% that payment goes to $1520.06 and at 5% it goes to $1610.46. So an increase of 1% in the mortgage rate is roughly a $180 a month difference in payment.
So what does that mean for you?
If you are in the market to buy a new home and are looking to finance the purchase, you may want to act sooner than later. If the rates to go up, waiting will cost you more money per month or you may have to settle for less home or fewer upgrades than you were hoping for. Under the same theory, if you are a seller you may want to list your home now instead of waiting. If rates do go up, buyers could be limited as far as how much they can spend per month and this could put some pressure on home sale prices.
Ultimately no one knows for sure what direction mortgage rates will take from day to day. The trend is certainly that they are going higher right now! If you are thinking about or looking to buy or sell this trend is something you should keep a close eye on!
If you would like to discuss this further or if you have a special situation you would like my input on feel free to contact me. I’d be happy to talk to you about it.
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About the author
Jeff is a top selling, nationally recognized Florida REALTOR® and local FishHawk Ranch real estate expert. You will find him selling homes in the Tampa Bay, Florida and surrounding areas. Some of those areas include FishHawk, Lithia, Riverview, Valrico, Apollo Beach, and Brandon.
If you are looking to sell or buy a Tampa Bay area home, Jeff is your local and trusted professional. He can be reached via text/phone at (813) 421-3007 or by email at Jeff@FishHawkRanchRealEstate.net.
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