The U.S. Federal Reserve determination to raise its benchmark interest rate for the third time this year may affect consumers ability to obtain financing, although it is not expected to have a detrimental impact in the country’s robust economy. Although the capacity of consumers decreases slightly as interest rates rise. Costs may increase proportionately at the time a mortgage is closed, so consumers who are closing leases in the next few weeks may see a small increase in their closing costs.
On the other hand, the FHFA (Federal Housing Financing Agency) announced that “jumbo loans” are about to increase in 2019 nearly 7 percent or to put in factual numbers: $453,100 to $484,350, an optimistic boost for first-time homebuyers in most counties nationwide. Same for high-cost residential areas in which the new threshold will be $726,525 from $679,550.
The US central bank raised the short-term rate (used for any personal or business loans) by 0.25% to a range of 2% to 2.25%. Interest rates for federally insured or guaranteed mortgages such as FHA (Federal Housing Administration), Veterans and Rural Development, which make up 85% of the local market, currently fluctuate between 4.5% and 5%. The Fed’s increase most likely brings those rates to 5% and 5.5%.
The increase in rates will impact mostly loans that close from now on, knowing that a notable percentage of residential mortgages in the US depend on fixed interest, their rate and the monthly payment remains unchanged. As for the local market, refinancing declined significantly after the Fed’s first interest rate hike in early 2018. However, it is still affordable to buy a 30-year home at 5.5%.
It is not the best interest rate of the last 15 years, but it is still a good business. In 2002, mortgages were closed at 8%. The intention behind this effort is for credit to become more expensive, reduce economic growth a little and control inflation in the United States, but inflation is so low at only about 1.5% that these policies may be ineffective, as experts in the field believe that expansionary policies are needed so the economy can take off as much as it can.