Youve probably heard in the news that mortgage interest rates have been on the rise. The Federal Reserve has been raising interest rates consistently for the past two years. If you are concerned how this will affect your mortgage, the impact it will have depends on the type of mortgage you have and how it is structured. Here are tips to help you make sense of mortgage interest rates. Mortgage lenders borrow money to fund their loans from Federal Reserve banks. Mortgage lenders and banks receive discount interest rates on these loans; the interest rate lenders are charged is determined by the Federal Reserve Board. The Federal Reserve meets every month to make policy adjustments, change interest rates, and update their predictions for the economy. For the past 24 months the Federal Reserve has raised short term interest rates at nearly every meeting. If you carry a significant amount of consumer debt you would be smart to evaluate how these changes will impact your credit cards, personal loans, and your mortgage. Fixed Interest Rate Mortgage Loans If your mortgage carries a fixed interest rate then the Federal Reserve changes will have no impact on your mortgage. Fixed interest rate mortgages offer the highest degree of safety from economic factors. The downside of a fixed interest rate mortgage is that they are more expensive; safety comes at a premium finance charge. If you currently have an Adjustable Rate Mortgage and are nearing the end of your introductory period, you might want to consider refinancing to a fixed interest rate mortgage. Adjustable Rate Mortgage Loans The main advantage of this type of mortgage is that during the introductory period the mortgage comes with an exceptionally low interest rate. It is important to note that the introductory rate is not your actual interest rate; as soon as the introductory period expires the lender will adjust the interest rate and payment amount to the current rate and add their markup. After the initial adjustment the lender will adjust the interest rate and payment amount at regular intervals. This is great if interest rates are declining; however, when rates are rising as they have been it can wreak havoc with your budget. You can learn more about your mortgage options, including common homeowner mistakes to avoid, by registering for a free mortgage guidebook: Five Things You Need to Know About Your Mortgage. |
