Interest rates may increase by mid-year and its effects

January 14, 2015

Interest rates may increase by mid-year and its effects

Interest rates may increase by mid-year and its effects

Are you planning to invest or get a mortgage by this year? What should you expect when it comes to interest rate? According to Bankrate.com, the Federal Reserve has set a benchmark or likely to boost its short term interest rate by up to 5% this year.

As 2014 ended, to summarize what has happened in the market:

Oil prices – average price for 1 gallon of regular gas in the US was $2.63, which was recorded as the lowest in 4 years since 2008.

Quantitative easing finally went away – quantitative easing or otherwise known as QE are programs that is designed to give a falling economy a boost when heading towards recession or financial crisis.

With the current economic and market situation getting stronger and solid as expected, it is more likely that the Federal Reserve will boost its short term interest rate. This turnaround is expected to hit by around 1% by the middle of 2015. This has also expected to increase in bond yields as well as mortgage rates, as the timetable for the Federal Bank’s interest rate will come into focus. Rate on credit cards, auto loans, and home equity line of credit will follow through a domino effect. It is also predicted or expected that the bulk of increases will come in the 2^ndhalf of this year (2015).

When it comes to 30 year fixed mortgage rate, it is also expected to stay below 5% within this year, but just as expected it could experience some volatility. Economic crisis and geopolitical issues can still have an impact when it comes to rate, as it is expected to be near 4% minimum and as high as 4.8% or 4.9% maximum.

Experts and economists are expecting the increase by the Federal Reserve as early as the first half of 2015 due to the inflationary pressures of rising wages and rents.

Effects on Home Buying and Selling

On a mortgage standpoint, it is basically saying that mortgage interest rates will gradually climb hence, the numbers will go up. This expectation set by the National Association of Realtors reveal that mortgage rates will increase for up to 5% this year and by 2016, it could be up to 6%. Would this put a stop on home sales, though? As long as lenders are more lenient with their standards for mortgage loan application, this would not be a reason for a decrease in the home selling market. In fact, there is a possibility for an increase in demand for consumers to buy homes since lending standards are not as high. This could also be a great opportunity for realtors to encourage potential homebuyers to own a property while it is easier to obtain or secure a loan.

Another point to look into is that there will be no more hiding cost of mortgages – means that the record low interest rate will no longer hide the mortgage compliance costs which have brought about from all the regulations that came down from 2014. Low interest rates have such an impact as well on the costs of mortgage such as total loan production expenses which includes – commissions, compliance, occupancy, equipment, compensation and corporate allocations. During the first quarter of 2013, it has been reported that these leaped up to $8,025 per loan.

One last thing to look at would be if the interest rates are deemed to increase as expected, with the past interest rates that happens to be low during the past few years – it could be an obstacle for homebuyers. They could find that the cost of the mortgage will be expensive, compared to its “affordability” for the past few years. On a brighter side, home buying demand can be determined based on the consumer’s ability to pay. For example, if the financing cost of a consumer is streamlined with their economic growth, it is more likely that they wouldn’t even bother their economic growth remains stagnant, it would be considered a hurdle with their home buying decision.

For home equity loans, it could mean that short term rates increase by the Federal Reserve may mean higher interest rates for this year. However, these are measured increases and strong lender competition which may work in favor of home equity borrowers.

Currently, according Mortgage Rates.com, aggressive lenders are quoting conforming, 30yr fixed mortgage rates at 3.5%. This rate hasnt been seen since May 2013. So if your plans are to BUY a home this year, you may want to jump on the band wagon a little early this year to take advantage of these low rates!

Sources:

http://www.housingwire.com/articles/32509

http://www.mortgagenewsdaily.com/consumer_rates/426051.aspx