Mortgage rates continue to fall, and home equity is at an all-time high. As a result, it’s a great time to buy a home or refinance an existing mortgage. But first things first, let’s take a closer look at how often rates change and what we can expect in 2019.
How often do interest rates change?
Mortgage rates can change daily, sometimes multiple times a day. They’re difficult to predict, though they’re often influenced by economic changes, world events, and the Federal Reserve (also known as the Fed in the media).
The Fed is the central bank of the United States. It makes a lot of important decisions regarding monetary policy, financial stability, and consumer protection. While the Federal Reserve does not set the specific interest rates in the mortgage market, its actions in establishing the Fed Funds rate significantly influence them.
How a government shutdown affects mortgage rates
Mortgage rates follow the direction of the economy, and economic uncertainty causes investors to flock to bonds. As more people buy mortgage-backed securities, interest rates lower, which in turn benefit home buyers and homeowners. This ultimately means when a government shutdown happens, or if it resumes in a few weeks, it could give you a chance to grab a competitive mortgage rate.
Mortgage rates forecast
As far as future rate hikes go, Federal Reserve Chairman Jerome Powell said in a January statement the U.S. central bank can be patient, indicating that Fed policymakers could lower their rate-hike forecast if markets continue to be turbulent and the economy slows more than anticipated. The original forecast included two rate hikes for 2019.
Realtor.com Chief Economist Danielle Hale’s forecast assumes mortgage rates will rise later this year.
How to get ahead
A general understanding of what influences mortgage rates can help you make a financially sound decision. But keep in mind, circumstances and benefits differ based on your personal financial situation. In fact, personal risk factors also play a key role in determining your interest rate. Think credit score, debt-to-income (DTI) ratio, and your overall debt in general. If you’re responsible with debt — you pay it on time and keep a reasonable balance on credit cards — you have a better chance of getting a lower rate.
Looking to buy a home
Home buyers should take advantage of the market’s current low rates by seeking mortgage pre-approval. Depending on your lender, a pre-approval letter can be good for 60 or even 90 days, meaning you have time to shop.
You also have time to watch rates. Once you find the one that fits your budget, you’re able to lock it for 30, 45, or 60 days, and sometimes longer. A 30-day rate lock is usually free, but anything longer may incur a mortgage rate lock extension fee or a higher interest rate. Be sure to ask your lender what they charge.
Looking to refinance a mortgage
If you want to eliminate private mortgage insurance, take cash out of your home equity, shorten your loan term, or switch between fixed and adjustable-rate loans — a mortgage refinance is worth considering, especially as rates are currently near nine-month lows.
More importantly, given the fact that credit cards rates can rise if the Fed raises its rate, you may want to consider debt consolidation. Credit card APRs are already in the double digits, some come in at 17% and others are around 19%. That’s three, almost four, times higher than mortgage rates. For those who carry a balance, it means higher monthly minimums and higher interest charges. The credit bureau TransUnion estimates that 92 million Americans are impacted by interest rate increases, and 9 million Americans are already stretched so thin that even a small hike will cause strain.
It’s a great time to speak to a mortgage consultant about rolling credit card debt into a much lower rate home loan before rates rise.
Want to learn more about debt consolidation? Visit americanfinancing.net. You can also check out next month’s Mortgage Matters, as we’ll be discussing the benefits of consolidating debt into your mortgage.