The days of historic low mortgage rates may be numbered. While the 30-year fixed rate was 4.54 percent on December 18, according to Bankrate.com, experts say interest rates are on the rise and likely to continue to climb.
“Everybody has an opinion about where the economy is headed, but at least one variable has been pinned down – the Federal Reserve will continue to raise interest rates into the foreseeable future,” says Stash Graham, managing director of Graham Capital Wealth Management.
The Fed recently announced that it is lifting its Federal Funds' target rate, a benchmark for many consumer and business loans, by a quarter-point to a range of 2-2.25 percent. “It also stuck with its previous forecast for three more rate increases in 2019,” Graham adds.
Fred Glick, CEO and founder of real estate site arrivva.com, says rates are about 25 percent higher than they were about 18 months ago. “Interest rate increases for the long end is an issue. In the world of what’s old is new, is the forward promotion of the second mortgages in the form of a credit line, aka HELOC. As the Fed keeps raising the Fed Funds rate, the HELOC payment goes higher and takes a bigger bite out of spending.”
Glick says he doesn’t think the Fed understands inflation in the computer age. “If I see something for $20 in a store that I can get for $12 online, I will buy it online and save the inflation. The Fed should stop raising rates immediately. I think they should drop by a quarter and stay there. Let’s get our boost back!”
In Light of Rising Mortgage Rates, What Should you Do?
“Consumers holding new mortgages today pay $200 or more per month in additional costs because of the rate rise. However, there are still a lot of Americans who pay 6 percent or more in interest and thus may be candidates for a refinance. They should move quickly to get a loan before rates rise still further,” says Michael Moskowitz, a CPA and president of Equity Now, a mortgage lender.
Lock in Your Rate
If you're already under contract and have started the mortgage process you should lock in your rate now before the increase, says Randall Yates, founder and CEO of The Lenders Network, an online mortgage marketplace.
Get the Best Rates
Regardless of what happens with the Fed and the rate hikes, you should be doing everything you can to get the most competitive rates on your loan, says Yates.
Check Your Credit Score
Your credit rating is directly tied to the rate you receive. Make sure your credit score is as high as possible before applying for a loan. The most effective way you can do this is by paying down your credit card balances. Credit utilization is the amount of available credit you're using, and it accounts for 30 percent of your overall credit score. Pay your balances below 20 percent of your card limits to maximize your credit rating.
Do Not Rush
While you want to mindful of rising rates, don’t let that blindly drive your decision, says Avi Sinai, principal of Hard Moola, a private real estate lending company, “Rates are much more fluid, and they fluctuate not only based on the Fed's decision. It is better to pay a half a point a year more and get more beneficial terms, lower closing costs, and a secure lender.”