Fed Raises Rate – What Next for Mortgages?

Last week the Federal Reserve raised a key interest rate for the first time in a year – the short-term interest rate was increased a quarter-point to a range of 0.5% and 0.75%. Increasing the rate does signal that the overall economy is stronger and the Fed has more confidence in it, so that is good news. However, this short-term rate impacts long-term interest rates for consumer borrowing, including credit cards, savings accounts, and, of course, mortgages.This is only the second time since 2006 that the Fed has raised rates, and it hinted that three more rate hikes are expected in 2017.Increasing the rate does signal that the overall economy is stronger and the Fed has more confidence in it, so that is good news. However, this short-term rate impacts long-term interest rates for consumer borrowing, including credit cards, savings accounts, and, of course, mortgages.So how does that affect you, whether you’re a buyer or a homeowner?Many economists don’t expect a dramatic increase in mortgage rates in the coming weeks since they have already inched up since October. The average 30-year fixed mortgage rate is around 4.5% now; compared to the 3.5% before the election.However, mortgage rates that do hover around 4.5% and even up to 5% are still historically low. In the 1990s rates averaged between 7% and 9%, and in the early 2000s between 5% and 7%. The 44-year historical average was 8%!So it’s still more affordable to borrow compared to years past. However, buyers may want to move up their plans to buy a home earlier in 2017. The long-term forecast indicates steadily rising rates … but still historically low.Current homeowners most likely will not be considering refinancing as rates rise. Those who have fixed-rate mortgages are fine. Those who have adjustable-rate mortgages may want to consider a fixed rate mortgage, depending on their circumstance.Let me know if you have any questions about how this may affect mortgage rates.