Mortgage rates are rising...Don't take them forgranted
Bottom Line: The average 30 year fixed rate mortgage hit 4.3% by the end of last week across the country. That's still a terrific mortgage rate but it's the highest in four years. What's more is that unlike four years ago the economy is strong and likely still gaining strength (with the impact of tax reform will soon be felt by people in their paychecks). Four years ago the Federal Reserve had a near-zero percent interest rate it charged banks that to lend to you. Today the Fed funds rate is 1.42%. What's more is that the last time the economy posted a full year of 3% growth (2005), the fed funds rate stood at 4.5% by the end of the year. So let me break this down...
- If the economy continues to grow at it's current pace or faster interest rates will rise
- I do think there's a better than not chance that the fed funds rate will be 4%+ next year
Now, this obviously has an impact on all financing and all variable rate debt but clearly none more important than a mortgage if you need one. So what could happen with mortgage rates over the next year? The average 30 year fixed rate mortgage is 8.5%. That's right, mortgage rates could nearly double from current levels over the next year and a half. What would that mean?
- Take the average mortgage in South Florida (around $250,000).
At 4.5% with average taxes and home insurance costs your monthly mortgage payment averages about $1950 per month. At 8.5% interest that same mortgage payment jumps to $2,700 per month! $750 per month difference on a $250k mortgage. That paints the picture of what would could be facing. The past decade featuring mortgage rates of 3.5% to 5% have been a historical anomaly due to the economic anomaly of the past decade. We'd never had more than four consecutive years of sub 3% growth until the past ten. The good news is that the economy is back. The wake up call is that interest rates are the trade off in a good economy.