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Many Americans saw a small increase in their paychecks in the beginning of 2018 as a result of the new tax law passed in December 2017. This type of influx of cash into the economy has had an effect by way of an increase in interest rates and a flurry of activity in the stock market. Investors putting their money in the stock market are looking to put some of that cash into the market while banks are hoping to cash in as well. As experts will tell you, this is actually a good thing. This is what confidence in the economy looks like to the public.
What Does This Activity Mean For Mortgages?
Since December 2016, mortgage rates were holding steady in the upper range of 3%. With this new influx of cash in the market, mortgage rates could be on the rise too. In March alone, interest rates for new mortgages rose with the exception of the week of March 15th but analysts feel that this was a quick reaction to the Federal Reserve's announcement increasing interest rates and that rates will continue to rise in the immediate future. Depending on the type of loan, rates could soon become out of reach. The trend appears that rates are on the rise for 30-year fixed mortgages. Experts agree that now is the time to lock in an interest rate if you are closing in less than 30 days.
However, if you know where to look, you could still find affordable interest rates. The cost savings happens if you are willing to look at a 15 year fixed rate mortgage or a 5 year arm. The 15 year fixed rate mortgages rate are still under 4% and as experts agree, they are always a better investment. There are pros and cons to the 15 year fixed rate mortgage such as higher monthly payments and the possibility of qualifying for a lesser loan amount but the pros are that you can pay off your home faster and have more equity built up to possibly invest elsewhere as the markets improve. The 5 year ARM has benefits and risks as well. You will most likely reap the rewards of a lower interest rate initially on your mortgage however your rate can rise and fall based on the market as it flourishes or tanks.
What Can I Do About It?
With all the volatility in the market and its effects on interest rates, certain things still hold true. With the rise in interest rates, remember that your credit card interest rates are affected too. Work at paying off that debt while saving for your future home. This will help you get the best rate possibly when you do decide to apply for a loan. Another option is to see if you can find opportunities to save money. With the increase in interest rates, comes higher returns on savings accounts and CDs.
If you are a current homeowner or are looking to become one in the near future, determine if you can apply for a VA loan for military veterans which requires zero down payment, a USDA loan which looks to encourage home ownership in rural areas and also requires zero down payments or a an FHA loan for buyers who may not qualify for a conventional loan or may have a less than stellar credit report.
If you are a current homeowner and are looking to refinance, determine if a 15 year loan is right for you. While you may be paying more monthly, remember that you are acquiring equity in your home faster. Think of it as a long term savings program for your next purchase or a home renovation in the future.
Please note, by refinancing your existing loan, your total finance charges may be higher over the life of the loan.