Here are some insights about the latest interest rate hike by the Federal Reserve and its potential impact on the housing market this spring and summer.
As you may know, the Federal Reserve raised its benchmark interest rate by a quarter of a percentage point on May 3, 2023, to a range of 5%-5.25%, the highest since 2007.
The good news about the latest move by the Fed is that the rate of increase seems to be going down. Rate increases had been as high as three-quarters of a point earlier, so the most recent 0.25% boost could signal an end to the tightening, says Mike Fratantoni, chief economist at the Mortgage Bankers Association.
“With this interest rate hike, we expect this is the peak rate for this cycle, and potential homebuyers and their mortgage lenders may be breathing a sigh of relief,” Fratantoni says. “We continue to expect that mortgage rates will drift down over the course of the year as the economy slows, as we move closer to the Fed lowering rates beginning in 2024, and as financial market volatility finally begins to settle down.”
Until then, however, here are four ways to offset current rates and lower your monthly mortgage.
- Make a substantial down payment. If you buy this spring or summer, you can avoid private mortgage insurance (PMI) by putting at least 20% down. If you’re close to having the cash for 20% down, it could be worth waiting a few more months to avoid the extra expense of PMI.
- Order an appraisal to assess home equity. Once you hit 22% home equity, you can drop PMI from your monthly payment of conventional loans with some exceptions. Home prices have risen even this year, so shelling out $300-400 may be worth it to kick PMI to the curb.
- Add years to your mortgage. Going from a 15-year mortgage to a 30-year mortgage or a 15-year to a 20-year will lower your payments. Just be sure to work with a knowledgeable mortgage lender so you fully understand your new interest rate and the total cost of your new mortgage.
- If renovating, consider a home equity line of credit (HELOC). If you plan to renovate, a HELOC will allow you to access your home equity while keeping your low rate on the bulk of your principal from several years ago.
As rates rise, working with a mortgage professional who knows the ins and outs of the industry can help ensure you get the best deal available. That said, please don’t hesitate to reach out with any questions or concerns you may have.