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Mortgage rates rise after Fed decision, but home prices soon fall

On Wednesday, the Federal Reserve raised federal interest rates by 75 basis points for the fifth time this year in an effort to curb record-high inflation.

Amidst the latest Consumer Price Index (CPI) report it shows that inflation has increased slightly month-on-month. This sent markets tumbling as investors worried that the central bank’s efforts were not working as planned.

For homebuyers, interest rates on 30-year fixed-rate mortgages hitting levels not seen since the 2008 housing crash will make buying a home even more difficult, according to the St. Louis Federal Reserve.

So how should home buyers approach the housing market with interest rates at 15-year highs and home prices stagnating? Select spoke to two experts about the recent interest rate hike and how consumers, especially homebuyers, should be thinking about it.

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How to shop for a home amid high interest rates

The advice from Melissa Kohn, regional vice president of William Ravis Mortgage, is simple: “Marry the house but date the rate.”

This comes from the idea that your home is a long-term purchase, but you can easily move by refinancing the mortgage. Home mortgage refinancing takes your outstanding home loan from one deal and transfers it to another with more favorable repayment terms. Refinancing is usually done when you have a high interest rate but lower mortgage rates are available.

He says to look at the initial mortgage for the home purchase as a “bridge” to better financing later. “Rates are more likely to come down by the middle of next year and by the end of 2023 or early 2024, although that projection certainly misses the mark,” he said.

So if you’re not particularly happy with the rate you’re locking in today, consider putting money aside every month Refinancing costs in the near future.

But for those who are financially on the fence when it comes to homeownership, Michelle Ranieri, vice president of financial services research and consulting at TransUnion, suggests perhaps waiting on the sidelines. They provide a good example of what monthly payments would look like on a $300,000 home with a 30-year fixed-rate mortgage, assuming a 20% down payment.

At the 3.5% fixed interest rate we saw earlier this year, the payment would be roughly $1,300. Now, with average rates around 6.5%, that monthly payment is now around $1,800. By waiting on the sidelines for a few months, home prices can soften and interest rates can bounce back, he says. If both of these things happen, it can lead to more affordable homes on the market.

But if you’re ready to buy a home or are preparing to buy in the coming months, these next steps can put you in a good position to qualify for a good mortgage rate.

Qualify before you shop

If you’re actively in the market for a home, you’ll need to get pre-qualified before you start shopping. While there are interest rate averages, each bank has its own insurance guidelines, so your interest rate with each may vary.

And on a mortgage, each interest point can make a significant difference in your overall amount of interest paid. On the same $300,000 home mentioned above, the difference between a 6% and a 6.125% fixed rate mortgage over 30 years is about $9,000 in extra interest.

So if you’re just starting to look at homes, be sure to pre-qualify with a few of our favorite mortgage lenders:

PNC Bank

  • Annual Percentage Rate (APR)

    Apply online for personalized rates; Includes fixed rate and adjustable rate mortgages

  • Types of loans

    Conventional Loans, FHA Loans, VA Loans, USDA Loans, Jumbo Loans, HELOCs, Community Loans and Medical Professional Loans

  • Rules

  • Credit required

  • Minimum down payment

    0% if proceeding with USDA loan

Chase Bank

  • Annual Percentage Rate (APR)

    Apply online for personalized rates; Includes fixed rate and adjustable rate mortgages

  • Types of loans

    Conventional Loans, FHA Loans, VA Loans, DreaMaker℠ Loans and Jumbo Loans

  • Rules

  • Credit required

  • Minimum down payment

    3% if proceeding with a DreaMaker℠ loan

Rocket mortgage

  • Annual Percentage Rate (APR)

    Apply online for personalized rates

  • Types of loans

    Conventional loans, FHA loans, VA loans and jumbo loans

  • Rules

    8 – 29 years, including periods of 15 years and 30 years

  • Credit required

    Typically requires a credit score of 620 but will consider applicants with a credit score of 580 as long as other eligibility criteria are met

  • Minimum down payment

    3.5% if proceeding with an FHA loan

Pay off or consolidate other debts first

If you have any variable rate loans, unfortunately, your costs will go up again due to the actions of the Federal Reserve. So before you shop for a home, it is advisable to pay off all your high-interest debt first.

In fact, if you pay off high-interest debt, it can help you qualify for better mortgage terms.

So if you want to move some debt, consider one of these two ideas:

If you have recurring credit card debt, you’re likely to pay exorbitant interest rates on your balance. To help you get out of the debt cycle, consider using a balance transfer credit card to move your debt to 0% interest for up to 21 months. The process is simple and the fees for doing so are usually between 3-5% of your current balance, but you’ll be able to save serious money over time and not have to worry about high interest rates.

Some of the best balance transfer credit cards available right now are the Citi® Diamond Preferred® Card, the Citi Simplicity® Card and the Wells Fargo Reflect® Card.

Citi® Diamond Preferred® Card

  • rewards

  • Welcome bonus

  • Annual fee

  • Introduction APR

    0% for 21 months on balance transfer; 0% for 12 months on purchases

  • Regular APR

  • Balance transfer fee

    5% of each balance transfer; At least $5. Balance transfer should be completed within 4 months of account opening.

  • Foreign transaction fee

  • Credit required

Pro

  • No annual fee
  • Balances can be transferred within 4 months of account opening
  • One of the longest introductory periods for balance transfers

Cons

  • 3% foreign transaction fee

City Simplicity® Card

  • rewards

  • Welcome bonus

  • Annual fee

  • Introduction APR

    0% for 21 months on balance transfer; 0% for 12 months on purchases

  • Regular APR

  • Balance transfer fee

    5% of each balance transfer; At least $5. Balance transfer should be completed within 4 months of account opening.

  • Foreign transaction fee

  • Credit required

Wells Fargo Reflect® Card

On Wells Fargo’s secure site

  • rewards

  • Welcome bonus

  • Annual fee

  • Introduction APR

    0% introductory APR for 18 months from account opening on purchases and qualifying balance transfers. Intro APR extension for up to 3 months with minimum payments during the intro period. 15.24% – 27.24% after variable APR; Balance transfers made within 120 days qualify for the introductory rate

  • Regular APR

    15.24% – 27.24% Variable APR on purchases and balance transfers

  • Balance transfer fee

    3% ($5 minimum) introductory fee for 120 days from account opening, then 5% ($5 minimum)

  • Foreign transaction fee

  • Credit required

Use interest-bearing accounts to refinance

While interest rates on loans are not great news for consumers, you can luckily take advantage of higher interest rates on high-yield savings accounts and certificates of deposit (CD). While these interest rates are nowhere near a mortgage or credit card, it’s an easy way to fight off your idle cash and earn some cash.

So if you’re saving for a home or continuing to build your emergency fund for a rainy day, consider opening a CD or using one of these high-yield savings accounts.

Sallie Mae High Yield Savings Account

Sallie Mae Bank is a member FDIC.

  • Annual Percentage Yield (APY)

  • Minimum balance

  • Monthly fee

  • Maximum transactions

    6 free withdrawals or transfers per statement cycle *Return limit of 6/statement cycle waived during coronavirus outbreak under Regulation D

  • Excessive transaction fees

    Any transfers over the limit will be assessed an excess transaction fee of $10 per transfer. Exceeding this limit repeatedly may lead to account closure.

  • Overdraft charges

  • A checking account offer?

  • Issue an ATM card?

Marcus from Goldman Sachs High Yield Online Savings

Goldman Sachs Bank USA is member FDIC.

  • Annual Percentage Yield (APY)

  • Minimum balance

    There is nothing to open; $1 to earn interest

  • Monthly fee

  • Maximum transactions

    6 free withdrawals or transfers per statement cycle *Return limit of 6/statement cycle waived during coronavirus outbreak under Regulation D

  • Excessive transaction fees

  • Overdraft charges

  • A checking account offer?

  • Issue an ATM card?

American Express ® High Yield Savings Account

American Express National Bank is member FDIC.

  • Annual Percentage Yield (APY)

    1.90% APY as of 9/15/2022

  • Minimum balance

    Minimum balance to open is $0

  • Monthly fee

  • Maximum transactions

    9 free withdrawals or transfers per statement cycle *Return limit of 6/statement cycle waived during coronavirus outbreak under Regulation D

  • Excessive transaction fees

  • Overdraft charges

  • A checking account offer?

  • Issue an ATM card?

American Express National Bank is member FDIC.

Make sure your credit score is as perfect as possible

If your credit score is lower than you want it to be, there are steps you can take to improve your score. To raise your score quickly, consider paying off your revolving credit balances, calling your card issuer and asking them to increase your credit limit and remove paid-off negative entries or errors from your credit report. Also, a tool like *Experian Boost™ can quickly boost your credit score by allowing you to connect your utility, telecom and streaming accounts to your Experian credit report, potentially increasing your FICO® score.

Experian Boost™

On Experian’s secure site

  • cost

  • Average credit score increase

    13 points, although results vary

  • Credit report affected

  • A credit scoring model is used

Experian Dark Web Scan + Credit Monitoring

On Experian’s secure site

  • cost

  • Monitored by credit bureaus

  • A credit scoring model is used

  • Dark web scan

  • Identity Insurance

The bottom line

Explore Select’s in-depth coverage Personal finance, Technology and tools, wellness And more, and follow us Facebook, Instagram And Twitter To be up to date.

*Results may vary. Some may not see improved scores or odds of approval. Not all lenders use Experian Credit Files and not all lenders use scores affected by Experian Boost.

Editorial Note: The opinions, analyses, reviews or recommendations expressed in this article are those of the selected editorial staff only, and have not been reviewed, endorsed or approved by any third party.

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