The Fed has finally hiked rates. Now what?

The Fed has finally hiked rates. Now what?

The Federal reserve hiked the Fed Funds rate yesterday for only the second time in 10-years by 0.25%. The last hike was last December, which was also 0.25%.

The hike was well anticipated, and by itself didn't cause any real issues. But what was a big concern for the markets was the FED hinting at raising interest rates three more times in 2017.

I've been saying for awhile that I expected 30-year fixed rates to average +/- 4.50% for 2017, but this is an indicator that it may go even higher.

Loan payments

Rates have creeped up from around 3.625% in August to roughly 4.375% today (after yesterdays hike).  For a $200,000 home loan, that means the loan itself payment went from $912.10 a month, to $998.57 a month, or $86.47 a month higher.

Another way of looking at it, is someone comfortable with a $200,000 loan in August, could only buy about a $185,000 house to get the same payment.

What’s next for the mortgage market?

With the FED hinting at three more hikes in 2017, it clearly should push anyone currently on the home buying fence to act. 

Buy a little less house, or pay a little more for the same house? Either way, it generally isn't going to prevent most people from still buying a house.

Higher rates, and lower maximum loan qualifying amounts tends to put the most pressure on first time home buyers, those lease able to afford slightly higher payments, and to find affordable housing.

The good news in rate hikes

The good news in rate hikes, is that if interest rates are rising, it is because the economy is improving. More people working, wages going up, and higher returns on any savings accounts. These all help to counter interest rate hikes.

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Joe Metzler is a Senior Mortgage Loan Officer for Minnesota based Mortgages Unlimited.

He was named the 2014 Minnesota Loan Officer of the Year, and Top 150 Loan Officers in the Nation for 2010, Top 100 for 2015, and Top 300 in 2016.  He provides Home Mortgage Loans in MN, WI, and SD. He can be reached at (651) 552-3681