In December of 2021, the Federal Reserve announced that it would be raising key interest rates in 2022. The announcement means that we can expect to see mortgage rates also rising throughout the year.
As mortgage rates climb, monthly payments increase, resulting in decreased spending power for homebuyers. If you are looking to purchase a house, now’s the time to do it. Waiting until later this year could make it difficult for you to afford your dream home.
Interest Rates Spike, With More Increases Likely on the Horizon.
During its December 14 – 15 meeting, the Federal Reserve stated that, to fight inflation, it would be raising its short-term interest rates. The move is expected to tamp down consumer spending, which has increased the demand and prices of goods and services. The Fed also indicated that more rate hikes were possible throughout 2022.
Although mortgage rates are not directly linked to the Fed’s benchmark short-term rates, they are influenced by them. Thus, as the Fed’s rates rise, so too will rates for mortgage loans offered by privatized or government-backed lenders.
Considering Buying a Home? Lock in Your Mortgage Rate Now.
So, what do increased mortgage rates mean for you? They could make buying a house more expensive for you.
For instance, suppose you are on the market for a $500,000 home now. You’ve found that the monthly payments would be affordable at that price and at the current interest rates. However, for whatever reason, you decide not to make the purchase.
A few months later, when you decide you’re ready to buy a house, the interest rates have increased. Now, your monthly payment jumps to an additional $500 or so, which is not financially feasible. To get a home with an affordable monthly payment, you would have to shop in a lower price range – somewhere around $350,000 to $400,000.
Your strategy might then be to wait for mortgage rates to drop – after all, they have fallen before – and purchase a home at that time. Unfortunately, going this route could be a gamble. The future might not bring the lower rates you’re hoping for. And because six additional rate increases are possible this year, it’s more likely than not that you will be looking at even higher mortgage rates later, decreasing your spending power even more.
Although buying a home later this year won’t be impossible, it might not be practical from a financial standpoint. If you’re looking to buy, it would be better to make the purchase now while rates are still low.
Contact Our Firm for Assistance
Purchasing a home can be an exciting yet stressful experience. For advice and guidance, reach out to Letterio & Haug, LLP. We have helped numerous clients through all phases of home buying transactions and can provide the counsel you need to feel confident in your decisions.
To schedule a consultation with a member of our New York team, call (845) 203-0997 or submit an online contact form today.