The Fed issued its much-anticipated rise in interest rates, which affects fixed-rate and adjustable-rate mortgage products alike. Meanwhile, learn more about refinancing second homes and investment properties, and explore best practices for renovating backyards and choosing a new construction home.
1. The Fed and mortgage rates
At the conclusion of its March meeting, the Fed announced a quarter percent increase in the federal funds rate, which sets borrowing costs for shorter-term loans in the U.S. That change could move the rate on 10-year Treasury bonds, which influences what consumers pay when they take out a mortgage or other kinds of loans. The Fed’s latest move is likely to push mortgage rates higher, making it all the more important to shop around for a rate that best suits your goals.
2. The Fed’s impact on home equity loans, HELOCs and ARMs
Rates for adjustable-rate mortgages (ARMs) will increase at the next reset if the fed funds rate goes up, although there are several caps on the amount of interest you could be responsible for. Home equity and HELOC borrowers typically have variable interest rates as well, meaning that the Fed’s decisions will have an impact on not just your monthly costs, but how much you pay for your loan as a whole.
3. Second home or investment property refinancing
Refinancing is more complicated for those who own multiple properties. Lenders consider second homes and investment properties to be riskier since the borrower doesn’t rely on them to keep a roof over their head, so they usually issue higher interest rates on these loans. Some lenders will shy away from these refinances altogether. Higher rates mean that it will take longer to recoup your closing costs, so be mindful of the break-even point and shop around for the best rates.
4. Backyard makeover best practices
It’s important to weigh the value of a backyard makeover against how much it costs. Simple steps like lawn maintenance may give you a stronger return on investment than labor-intensive renovations with expensive materials. In addition, features like patios and fire pits can create a pleasant ambiance that can help you sell your home faster. If you’re going to go for a more expensive project, consider financing with a home equity loan or a home equity line of credit (HELOC) to avoid the high interest rates of alternatives like credit cards.
5. Choosing a new construction home
Buying a freshly built house comes with a number of perks. Your home will be brand new, meaning that it will be energy efficient and low maintenance. In addition, you’ll be able to customize the space more than you would in an older home. That said, buying or building new construction is time-consuming and expensive, and you may become exhausted from the many decisions you’ll need to make along the way. If you choose to purchase a new construction home, you’ll want to ask thorough questions to find a builder you can trust.