What will Interest Rates do in 2017?


 Although Crystal Balls would be ideal, they offer no real insight to today’s Real Estate Market.  If you are in the market for a home in the Fort Leonard Wood area, let Team Ellis help.  Here are some helpful economic predictions to 2017.  

 What is an INTEREST RATE?

 Interest rates impact all levels of our financial lives. As anyone with a bank account and a car note knows, there’s more than one interest rate.  The most popular interest rates are driven by the Federal Reserve’s monetary policy decisions. The Fed manages interest rate levels to meet their  “maximum employment and price stability.”   

 Yet most consumer rates are driven by the federal funds rate (which is also considered the central interest rate in U.S. financial markets). Simply put, the federal funds rate is the interest rate that major banks use when borrowing or lending funds through our nation’s central Federal Reserve banks.  The Federal Reserve has kept the federal interest rate between 0 and 0.25 percent since 2008 as a means to spur banks to lend to businesses seeking to invest in expansion, individuals looking to finance a car purchase or families looking to obtain a mortgage. This is the lowest level the Fed can set the federal interest rate.

 Mortgage Rate Predictions

The housing industry has been on a tear as mortgage interest rates have remained in the range of 3 to under 5 percent since 2010. Does a rate increase mean the end of rock-bottom interest rates for home buyers?    Overall, interest rates jumped after the presidential election because of the prospects for higher deficits and higher inflation, spurred by Trump’s tax and spending proposals. But considerable uncertainty exists over how much of his program will be adopted, when it will be adopted and how it will be paid for. This has caused the 10-year Treasury rate to meander up and down so far this year. However, it is highly likely that sometime in 2017, it will become clear to bond markets that both the deficit and inflation are headed higher.

 Mortgage interest rates forecast suggests that a rise in the fed funds rate will increase the borrowing costs for the consumer. Mortgage rates have already pushed to their highest levels since July 2015. At an average 4.125 percent for a 30-year mortgage, the Nov. 20, 2016 rate was roughly a half percentage higher than it was on Election Day. In fact, it doesn’t take much of a rate increase to influence consumer borrowing rates. In 2008, the fed funds rate was 1.92 percent and the average 30-year home mortgage rate was 6.05 percent.

Even a small interest-rate hike on a large loan balance can cause a significant increase in monthly debt payments. In 2014, the average 30-year fixed mortgage loan rate was 4.17 percent. In 2015, the average dropped to 3.85 percent, and by June 2016 the rate fell to 3.57 percent.

The monthly principal and interest payment for a $225,000 mortgage at each of these rates is:

  • 4.17 percent average rate in 2014: $1,096
  • 3.85 percent average rate in 2015: $1,055
  • 3.57 percent rate in June 2016: $1,019

If you estimate that in 2017, the mortgage rates trend creeps up to 5 percent, it would cost $1,208 per month or $2,268 per year more than if rates remained at the 2016 level of 3.57 percent. Multiply that $2,268 over 30 years and the higher interest rate could cost you an additional $68,040 over the life of the loan. 

Borrowers should keep their credit profiles strong. If you have credit issues, take steps to improve your credit score to receive the best borrowing rates in the future. And if you’re in the market for Buying a home in the Fort Leonard Wood area act sooner rather than later as the crystal ball suggested higher interest rates by Mid-2017.  Now call Team Ellis and go out and find that house!  

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