2022 came in and the Federal Reserve made it clear that this was the year! The Fed’s last meeting was the end of December but the minutes from their meeting were released last week. They made it clear that they didn’t view inflation as transitory and they are looking at their policies this year to reflect that.
So what does that mean? Many expect that the Fed will raise rates as early as their March meeting. Originally it was expected that we might see rates increase in June. Plus there is a chance that the Fed will raise rates 4 times this year instead of the anticipated 3 times. And immediately interest rates went up! The end of 2021, we saw rates averaging around 3-3.25%, now we are seeing rates between 3.50-3.75% depending on your file (credit, loan type, etc all play into your rate).
This week we saw rates stabilize a little bit but no guarantee where they will end up or if this was a momentary blip as they continue to increase. At this point based on market indicators, rates are forecasted to be around 4% by the end of 2022 – maybe much sooner based on last week!
So what does that mean to you if you want to buy a home? Sooner rather than later will more than likely get you lower rates. A mortgage of $300,000 would be a principal and interest payment of $1,347 at 3.5% on a 30-year mortgage. If your rate goes to 4%, that payment will increase to $1,432. Your total payment will go up about $85/month. This will also make a difference in what you can qualify for on a monthly basis. If you have already been pre-approved, you may want to talk to your loan officer and see if the change in interest rates has affected what you can buy.
There is also a change coming for second homes. Currently second home interest rates are about the same as a primary residence, but that will be changing by the middle of February. Fannie Mae and Freddie Mac came out with price increases after the FHFA announced a change in the loan level pricing for second homes. If you are looking to purchase a second home, expect the interest rates to be similar to those of investment properties. The amount you put down will definitely affect your interest rate and the more you can put down, the better.
Remember that interest rates around 4% are still very low from a historical perspective. We have just been really spoiled the last couple of years!!