The Federal Reserve is nearly certain to announce a quarter percentage point hike in interest rates at their Sept. 26 meeting. The increase won’t have much impact on fixed-rate mortgage rates, but adjustable rate mortgages, or ARMs, could rise.
“Mortgage rates are unlikely to see any significant impact from this rate hike. It would take a surge in inflation to push mortgage rates meaningfully higher,” says Greg McBride, CFA, chief financial analyst for Bankrate.com. “All of the financial troubles in emerging markets, Turkey and Argentina most notably, are sustaining demand for safe-haven Treasuries and keeping a lid on both bond yields and mortgage rates.”
ARM borrowers are more exposed because those loans are indexed to short-term interest rates. Borrowers with hybrid ARMs, that are set to adjust within the next year, should consider refinancing now.
“If you took out a 5/1 ARM in the last year or two you still have that low initial rate for another three or four years. You might not want to run out and refinance that just yet,” says Frank Nothaft, chief economist for CoreLogic. “But if you took out your 5/1 ARM four or five years ago, you’re coming up to that adjustment period. Your interest rate will go higher. Depending on the terms in your contract, it could jump up a couple of percentage points.”
For homebuyers in the market now, you can still lock in low rates, but you might not want to wait too long. Nothaft predicts these sub-5 percent rates will come to an end by next year.
“By the time we get to the end of 2019, fixed-rate mortgage rates are maybe up half a point compared to where they are right now, so that would put us at 5 percent,” says Nothaft.
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