Minor home loan rate increase could deter spring buyers

by / ⠀News / April 19, 2024
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Minor increases in home loan rates due to current financial conditions may deter prospective homebuyers during the spring home purchase season. Despite this, rates are still significantly lower than a few years ago. Add in the current tax incentives for home purchases, and it could still be financially viable for potential buyers to enter the market. Experts advise not to be deterred by these minor fluctuations with the overall trend in home loan rates remaining downward.

Shifts in home loan rates mirror the actions of the Federal Reserve, with the Fed rate being a reliable indicator of the US economy. The Federal Reserve is currently avoiding rate reductions until the 2% inflation target is approached. This could impact how consumers borrow for housing. While higher interest rates may increase the short term cost of buying a house, homeowners looking to refinance could benefit.

The latest inflation rates reveal a 3.5% yearly increase, a three basis point rise from the previous month. This could delay cuts in the Fed rate and thereby delay major reductions in mortgage rates.

Marginal loan rate hikes affecting spring homebuyers

The rising cost of basic goods and services due to inflation may strain everyday expenses for the typical individual but offer a chance of return growth to those with inflation-adjusted incomes or investments.

Despite higher rates, ready homeowners should not be discouraged from buying properties. Opportunities for refinancing may arise and with real estate being a long-term investment, trends could shift over time. Planning strategically can help offset the impact of incremental increases in mortgage rates, and the possibility of rental income can offset interest rate hikes.

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The current national average for the 30-year fixed mortgage rate has seen a minor increase, standing at 6.86% up from the previous 6.82%. The 15-year fixed mortgage rate is now approximately 6.10%, up from 6.06% the previous week.

The mortgage interest rate is primarily a charge for borrowing money from the lender, which is affected by the borrower’s credit rating, down payment, and overall financial condition. Borrowers typically choose between two standard mortgage terms—30-year and 15-year—with each offering its pros and cons. The selected mortgage rate will be determined by the economic circumstances when the mortgage is taken out and personal financial considerations. Hence, prudent financial planning is crucial.

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