With U.S. mortgage rates increasing, homeowners with variable loans will be the most affected at first. The rises will have a ripple effect across the sector, however, because experts expect more increases from the Federal Reserve.
News from the mortgage sector is that average rates for a 30-year fixed-rate mortgage have now reached 4.38 percent on average; a rate not seen since April 2014. Though many homeowners may have fixed rates at a lower level, the rising interest will have an increasing effect on many. For example, predictions for the number of refinance applications expected in 2017 have already been halved by lenders. There may be a short-term surge in new mortgage applications as borrowers try to get a home loan at current rates before they increase further.
Despite the concerns, consumer borrowing rates are still low compared to historic levels. Kroll Bond Rating Agency’s senior managing director, Chris Whalen, said, “This economy has gotten so conditioned to 2% and 3% mortgage rates that there is sticker shock.”
Some of those hit worst will be borrowers shopping for home equity lines of credit (HELOCs). Interest rates have already risen for these consumers wanting to borrow against their property value. It means that current borrowers will see increased payments within one to three billing cycles. Those with adjustable-rate mortgages (ARMs) will also note a considerable increase in the years to come.
If you have such a home loan or line of credit, it’s worth taking the necessary precautions to ensure that you can afford the repayments, whether this is reducing your expenses, increasing your income or, for those on an ARM, shopping around for a fixed-rate mortgage.
If you are interested in refinancing your home loan, visit the MoneyTips Mortgage Planner.