December 17, 2015
We have paid more attention to mortgage rate trends this week due to a major economic event scheduled for Wednesday that has big potential to affect mortgage loan rates both in the short term and over the long term. The Fed was scheduled to meet on Wednesday to make an announcement about the possibility of along-discussed December interest rate hike.
And Wednesday was the day the Fed finally announced the increase is actually happening. It’s something they have been considering, reconsidering, and delaying for years. But how does this affect the average home loan applicant?
In the past, mortgage loan rates have been adversely affected by talk of a Fed rate increase–the rates would jump in the short term based on investor reaction to news of a possible hike, indicators that the Fed might view as favorable towards justifying a rate hike, etc.
The Fed raising rates isn’t the only issue that worried investors–how high the first rate hike might be, whether there will be successive rate hikes, and how severe those hikes may be are all factors. According to a Wednesday report at CNN.com, this week’s Fed announcement of a small rate hike did have some good news for those watching the markets. According to the report, “Investors were pleased to see that the Fed expects ‘only gradual increases’ in rates next year and that the committee explicitly said it would take into account ‘readings on financial and international developments.’ ”
A rate hike means savings accounts may see additional interest, while mortgage rates will also rise. But mortgage loan interest rates can also change based on investor behavior over time. And what did investors do following the Fed rate hike announcement?
Mortgage rates actually moved slightly lower. Why? There are many factors, but one of them is that financial institutions anticipated some kind of change in the Fed mortgage rate and that today’s news is no surprise. Could rates have moved higher if the Fed revelation today wasn’t expected? Many feel the “it’s likely to happen” vibe going into today’s Fed event was an important part of the reaction to the news.
Many professional market watchers will explain that while the Fed rate hike can and will affect mortgage rates over the long term, the mortgage loan rates and the Fed rate hike are not necessarily moving in lock step with one another. Our sources report lenders were basically acting quite “conservative” today in terms of adjusting rates.
30-year fixed rate conventional mortgage loan rates ended the day at a best-execution range between 4.0% and 4.125% depending on the lender. Borrowers may notice today’s rate movements in terms of alterations in closing costs rather than actual higher rates (depending on the lender).
FHA mortgage loan rates, best execution, remain in their 3.75% comfort zone at the time of this writing. Remember, the best execution rates seen here are not available from all lenders or to all borrowers. Your experience may vary depending on the lender, your financial qualifications, and other factors.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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