Couple standing in front of their new home.

As of June 25, 2018, we’ve made some changes to the way our mortgage approvals work. You can read more about our Power Buyer ProcessTM.

Do you have your eye on that charming two-bedroom ranch? Maybe you’re looking at that four-bedroom colonial with the granite countertops in the kitchen.

No matter your taste, if you’re ready to buy a house, it makes a lot of sense to act as quickly as possible. Although rates aren’t quite as attractive as they’ve been at other times over the past decade, it’s important to realize that they’re still on the low end when looked at in the context of history. You might as well jump on the opportunity while you have the chance.

If you’ve paid even the slightest attention to the advertisements from any mortgage lender, you hear it said all the time that low rates don’t last forever. It may start to sound like a song on constant repeat, but it’s the truth.

We’ll go over why it’s reasonable to expect that mortgage rates will go up somewhat in the near future. Then, for those of you who like doing the math, we’ll talk about what the rate increases could mean in terms of dollars and cents.

Rates Are Low, but It Won’t Last Forever

There are a couple of big factors that have the potential to impact mortgage rates in the coming months and years, in addition to economic data itself. The U.S. central bank plays a key role.

Short-Term Interest Rates

Rates are still very low. Lower interest rates mean consumers can borrow money for things like cars and homes more easily, and all that spending has a positive impact on the economy. It’s also easier for businesses to grow and hire more people.

With that said, the Federal Reserve just raised short-term interest rates for the second time in the last several months. These short-term rates affect the cost for banks to borrow money. Although there isn’t a direct correlation, the longer-term rates given to consumers for things like mortgages and car loans tend to go up as lenders pass on the cost to consumers.

couple accepting keys

Why wouldn’t the Fed choose to keep rates low forever? As it turns out, it’s a bit of a balancing act. If it’s easy to get money, the money you have is no longer worth as much. It can also cause too much growth too fast. This leads to bubbles and wild swings in prices.

The Federal Reserve has signaled its intention to raise interest rates two more times this year. When that happens, mortgage rates could very well go up.

Short-term interest rates are just one of the ways the Fed affects mortgage rates. It also has an impact when it opens up its wallet.

The Fed and the Mortgage Market

The Federal Reserve also purchased a ton of mortgage bonds as a means of helping the economy recover from the most recent recession. We’ve talked at length about how the mortgage market works in other posts, but I’ll briefly summarize here.

When you close your loan, it’s insured by entities like Fannie Mae, Freddie Mac, the FHA or the VA. Once that happens, lenders often package loans with similar characteristics like credit score, down payment or amount of equity, and term length together with other loans in something called a mortgage-backed security (MBS). Making the mortgage bonds available to investors allows the lender to quickly gain more funds to continue to make loans rather than potentially waiting 30 years for a payoff.

The trading of MBS has a direct impact on mortgage rates. When people are in the mood to buy mortgage bonds, mortgage rates are lower because the return on the bonds can be lower. If the economy is doing well and people are in the mood for the riskier but higher yielding stock market, they would likely sell mortgage bonds. Yields, and therefore rates, would have to push higher in order to attract investors.

In order to stimulate the economy, the Fed chose to buy a ton of fixed-rate mortgage bonds in order to keep rates low and encourage people to buy. Since they’ve so far reinvested the returns into new mortgage bonds, they own about $1.77 trillion worth of MBS and are the biggest buyer in the market.

At some point, the Fed is going to sell these bonds in order to give itself a little more flexibility to respond in the event of another recession. Unless several bond buyers pick up where the Fed left off, rates and yields would go up.

Making Sense of Dollars and Cents

We can talk until we’re blue in the face about rates going up, but what does it actually equate to in terms of your pocketbook? To get an idea of the impact of higher rates, let’s take a moment and do the math.

For the purposes of comparison, we’re assuming a $200,000 loan amount on a 30-year mortgage in Michigan. Costs may vary slightly due to regulation depending on where you live. The only thing we’ve changed up in each case is the interest rate. If you’d like to put in your own numbers, check out our amortization calculator.

Depending on the loan you get, rates are currently in the low- to mid-4% range. Let’s start with a rate of 4.375%. On a $200,000 loan amount for a 30-year term, you would have a $998 monthly payment and pay $159,485.48 in interest over the life of the loan.

It’s worth noting that when you’re talking about a home loan, a small rate increase does make a difference. If that rate goes up to 4.5%, the payment increases by $15 per month. Although that may not be a whole lot, it adds up to more than $5,000 worth of extra interest over the life of the loan.

Let’s say rates increase to 5.5%. The monthly payment would be $1,135.58. You would pay $208,808.13 in interest. If rates were to push up to 6%, the mortgage payment would go up by about $60, and there would be another $22,000 increase in the amount of interest you paid.

Of course, you have to make sure you’re ready to buy. Make sure to see if you have room in your budget and get a preapproval, but if you can, it makes a lot of sense to buy now while rates are still pretty low.

If you’re ready to take the leap and get into a new home, you can get started get started today. And if you’re a returning client, you can save $1,000 on a purchase loan with your gold card code. If you’d prefer to get started over the phone, you can call (800) 785-4788.

Some of this interest rate stuff can be hard to wrap your head around. If you have questions, leave them for us in the comments, and we’ll get you the answers.

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This Post Has 16 Comments

  1. What do you guys have to offer for first time homebuyers? Do have loans with low down payments or loans with no private mortgage insurance?

    1. We have a variety of low down payment programs. You can buy a home with little as 1% or 3% down. Unfortunately, to completely avoid mortgage insurance, you would need to put 20% down. However, we could take a look at your options to avoid the monthly payment by taking a slightly higher rate with lender-paid mortgage insurance like PMI Advantage. I’m going to recommend you get in touch with one of our Home Loan Experts by filling out this form or calling (888) 980-6716.

      Thanks,
      Kevin Graham

  2. My Husband is still working and will soon become 71 yrs old and would love to retire.. We re financed with quicken Loans a coupe years ago, was wondering if it would be wise to check into the Reverse Mortgage now that rates are down some? I’m in my late 60’s and this would be so helpful, if we qualified?

    1. Hi Gail:

      Retirement sounds like a great goal. I’m going to refer you to our sister company One Reverse Mortgage to discuss your options, but it certainly wouldn’t hurt to check while rates are low. If you reach out to (800) 401-8114, one of our licensed specialists will be happy to speak with you. Thanks for being an amazing client!

      Kevin Graham

    1. Hi Brad:

      That’s a very good and complex question that I won’t attempt to fully answer here. We have a whole blog post that talks about how macroeconomic events, whether happening in the U.S. or abroad, affect mortgage rates. That said, I can briefly try to give you the basics.

      Mortgage rates are based on the going rate for mortgage-backed securities (MBS) in most cases. Mortgage-backed securities are traded on the bond market and are considered safer assets than something like stocks which are subject to daily fluctuations. With a bond, you’re getting a fixed rate of interest over a set time period. The attraction of the stock market is the potential for higher returns. That said, when there’s an event that has a negative impact on stocks, money tends to flow into the bond market and one of the things that benefits are mortgage rates. In the case of the French election, you have one candidate that wants to stay in the European Union and one candidate that wants to take them out of the EU. If France leaves the EU, all the trade deals would have to be renegotiated and the euro would have one less country backing its currency. All of this leads to uncertainty, because companies have global investments. Investors tend to take their money out of stocks and put it back in the bond market. Because the rate of return on mortgage-backed securities doesn’t have to be as high in order to find a buyer now, mortgage rates can be lower. In contrast, when there’s more certainty, people put their money back in stocks and mortgage rates might go up as people leave the bond market.

      That’s a very abbreviated explanation and there are a lot of factors, but I would encourage you to check out this blog post. Thanks for reaching out!

      Thanks,
      Kevin Graham

    1. That’s a big milestone, Bea! Congratulations! If he wants to get a preapproval online, you can do so through Rocket Mortgage or give us a call at (888) 980-6716 and we’ll be happy to take care of him and go over his options.

  3. I have 2 mortgages with Quicken loans and wanted see if I could lower my rates on either of the properties? Or see if I could get a loan consolidation on the mortgages to a lower rate?

    1. Hi Daniel:

      We can’t consolidate the mortgages on two separate properties into one, but we can certainly help you look and see if you can lower your rate. If you would like to go through the approval process online, you can get started through Rocket Mortgage. If you’d prefer to get started over the phone, one of our Home Loan Experts would be happy to take your call at (888) 980-6716.

      Thanks,
      Kevin Graham

  4. Awesome!!! I will recommend Rocket Mortgage to my first home buyers in Broward county south Florida.

    1. That’s great, Luciene! We really appreciate it! I’m glad you like what you see. Thanks for reading!

    1. Hi David:

      I see we’re in the process of contacting you. I’m going to pass this along to our client relations team so we can make sure you get in touch. You’ve come to the right place.

      Thanks,
      Kevin Graham

      1. I have a current mortgage with Quicken with a rate of 4.250%. Is it possible to refinance at a lower rate without going through the refinancing process? Thanks for your reply. David

        1. Hi David:

          Anytime you change rates, it does involve refinancing. That said, there are certain programs that streamline some of the documentation processes and there are refinance options that don’t require additional appraisals depending on qualifications. That said, I think it would be worth your time to speak with one of our Home Loan Experts to see if refinancing at this point would make sense before moving forward. You can get in touch with them by filling out this form or calling (888) 980-6716. Hope this helps! Thanks for choosing us!

          Thanks,
          Kevin Graham

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