By Matt Allen
Vice President, Portfolio Lending (NMLS #415037)

How the Federal Reserve Decision Affects Your Mortgage Rates

Sep 08, 2015

  • News
  • Mortgage Rates
  • Home Loans

On Thursday, the Federal Reserve in Washington D.C. announced they would not change the Fed Fund Rate, which has not seen an increase since June of 2006.

In the meeting, the FRB voted to keep rates at the current rate of 0.25% due to concerns that an interest rate hike would hinder continued U.S. economic recovery. The Reserve will hold two more meetings before the close of 2015, leaving room for the possibility of an increased rate. Some analysts are predicting a climb of 0.125% or 0.25% later this year or in early 2016.

How does the Federal Reserve announcement affect you?

  • Home Equity Lines of Credit: If you have a HELOC right now, it is important to remember that they are directly tied to interest rate fluctuations. An increase to the Fed Funds Rate could potentially cost you more money. For example, if you have a HELOC valued at $250,000 with a 3% interest rate, your monthly payment is $625 per month interest only. Should that interest rate climb a mere percentage point to 4%, your monthly payment jumps to $833 a month, or an added $2500 a year just because of the change to the interest rate. Right now, you still have options before you are caught with higher monthly payments that are beyond your control. You can pay the HELOC off entirely prior to a rate increase to avoid the volatility. Or, you can capitalize on the still historically low rates by consolidating your first and second mortgage into one payment. This option locks you into a fixed rate while putting the equity in your home to use for you.
  • Rate and Term Refinance: If you have put off refinancing your existing loan to lower rates or want to shorten the term of your loan, it’s time to act. Refinancing could save you money each month, or reduce the number of years you pay on your home. As rates rise, your potential savings would decline.
  • Home-buyers: Now is the best time to purchase. First-time buyers and those in the market for a new place should act now to avoid paying potentially higher interest rates in the future. When the Fed raises interest rates the rates available for fixed-rate and adjustable-rate mortgages will be impacted and could move higher, meaning you will pay more every month.
  • ARMs: Homeowners with Adjustable Rate Mortgages (ARMs) should consider acting. If you are looking to refinance your adjustable-rate to a fixed-term or are nearing an adjustment period on your existing ARM, you should act soon. Depending on what index your ARM is tied to, increased rates could further raise your monthly payments.

Predicting when the Fed will raise rates is complicated. As always, we will keep a close eye on market conditions and changes. Regardless of your status in the homeowner process, NASB is here to find competitive interest rates and customized mortgage solutions for your unique situation. Call us at 855-465-0753 for any questions you may have.