Are rates climb­ing now?

Home - Santa Fe Real Estate Guide - - PERMACULTUREINPRACTICE MORTGAGEMATTERS - JIM GAY

Homeowners and home­buy­ers can be heard ask­ing, “What will we do when rates go up?” “Should we have bought or re­fi­nanced two months ago?” “Were those mort­gage peo­ple telling the truth?” Well, guess what? Rates aren’t go­ing up, they are up. So, what do we do now? Do you wait like you have done for the last cou­ple of years? Do you hold firm that rates will go lower if youwait a lit­tle longer? My an­swer is “NO!” Get with your Realtor, get pre­qual­i­fied, and get go­ing. Your new pri­mary or sec­ondary home is out there. Get over the shock of the in­crease in rates and act be­fore we get hit again.

Rates will be higher in 2017. Lets take a look. If you need a $300,000 mort­gage and the rate is 4.125 per­cent in­stead 3.625 per­cent, the dif­fer­ence in pay­ments is only $ 85.80 per month. Is that enough to stop your trans­ac­tion? Prob­a­bly not.

We have ex­pe­ri­enced a sud­den spike in rates im­me­di­ately af­ter the pres­i­den­tial elec­tion. The next day, stock mar­ket val­ues climbed, the U.S. Trea­sury yields jumped up, and mort­gage in­ter­est rates climbed. It was a sur­pris­ingly quick re­ac­tion.

Many of us re­mem­ber the mid 1980s, when rates were at 14 per­cent briefly and then we cel­e­brated as the rates fell to 9 per­cent. A lit­tle over 4 per­cent on rates for 2017 is quitw a fa­vor­able con­trast to past decades. If you are in the mar­ket for a home, you will also def­i­nitely want to con­sider the ad­justable-rate prod­ucts. The 5-yearARM and the 7-year ARMare cur­rently at 3.25 per­cent and 3.625 per­cent, re­spec­tively.

Is there any rea­son to be thank­ful that rates are up? Con­sider this: In a rate-ris­ing mar­ket, even though a lit­tle pinch is felt at first, it usu­ally means that re­tire­ment ac­counts, which are filled with in­ter­est-bear­ing in­stru­ments, will also be on the rise. Also, the stock mar­ket will in­crease in value. So let’s not be too con­cerned.

What should we ex­pect for in­ter­est rates as we get into the first and sec­ond quar­ter of 2017? Will they con­tinue to in­crease? The his­toric an­swer is that we will prob­a­bly see rates level from this ini­tial jump. By that I mean that the 30year fixed will prob­a­bly stay in the low 4 per­cent range and the 15-year fixed will stay in the 3.25 per­cent area — still ex­tremely ben­e­fi­cial rates for homeowners. These rates are for con­form­ing mort­gages (Fan­nie Mae and Fred­die Mac) which are less then or equal to $417,000.

Re­mem­ber, in 2017 the U.S. econ­omy will still be at a low-growth level and we should not ex­pect rates to jump un­til the econ­omy has shown some real growth, per­haps late in the year.

Jim Gay was a real–es­tate bro­ker for 20 years and has been a con­sul­tant to For­tune 500 com­pa­nies. He is cur­rently a bro­ker/owner ofThe Mort­gage Place Inc. (986-9080) and can be reached at jim@ jim­gay­home­m­o­rt­gage.com.

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