Rising Interest Rates- Fear not FINAL!

It might be instinct for your panic to rise right along with interest rates, but it doesn’t have to.  Here are a few things to consider to help keep your fear at bay and sleep at night.

1. Rising interest rates suggest a strengthening economy.

Interest rates increased this summer because the Federal Reserve suggested that they MAY begin easing up on stimulus initiatives in response to data suggesting a strengthening economy.  A stronger economy is what provides us with better job stability, more job opportunities and increased home values which help make home ownership a smart investment once again.  It was inevitable that rates would increase as the market improved, and that one day, we would find ourselves facing rising interest rates.  And here we are, that day is now.

2. Though rates are higher, they are still at historical lows.

What current first time homebuyers may not know and what more seasoned homebuyers may have forgotten is that mortgage interest rates in the mid-1980s were at 16%.  During the past three decades, we have experienced a declining rate environment, and in recent years, those rates have hit all-time lows.  To keep it in context, 3 ½% interest rates do not suggest a sustainable economy, but rather an overdue correction to what should be a more normal rate environment.  Therefore, it makes sense that rates are increasing, but it is important to remember that they are still historically low.

3.      Increased inventory will provide more choices for home buyers.

There have been many people who have been aloof about their need to move from their current home, feeling little pressure with rates so low.   With the increase in rates, the empty nester looking to downsize or the starter homeowner looking to upgrade will feel pressure to make that move making their current home available to the marketplace.

4. There will be less competition for the houses that are available.

Despite the rational explanations for the rate movement, some people will still feel as though they have missed the boat.  As a result, they may leave the housing market, thereby freeing up inventory for buyers who may have been squeezed out based on lower inventory levels in recent months.  For example, a family looking for their next move-up house may feel that they should wait now that interest rates have increased, creating less competition for that housing type.

5. Fixed rate mortgages aren’t the only option, there are other mortgage products available that may best meet the needs of certain homebuyers.

It is important to remember that interest rates have only increased approximately 1% above historic lows.  What may have been forgotten in recent years is that there are mortgage products that address customers with varying financial needs and risk tolerances.  Lenders still have Adjustable Rate Mortgages (ARMs) available to buyers which typically carry lower interest rates than fixed rate products.  As rates increase, the spread between a fixed rate mortgage and ARM will increase, as will the popularity of an ARM.  A home shopper looking for shorter term financing or to manage their debt anticipating income increases can still get a lower interest rate by considering an adjustable rate product.

So, while it is true that mortgage interest rates have increased this summer and are no longer at the all-time lows – where they have rested for a long time – what those of us in the industry know is that rates go up and rates go down.  The right time to purchase a home is when it is the right time for your family.  A sudden spike in rates such as we’ve recently experienced should not discourage a prospective homebuyer from entering the housing market.

If you are interested in exploring how current interest rates have impacted your purchasing power, the Mortgage Loan Advisors at Simsbury Bank are always available to answer your questions.  To schedule an appointment, simply call 860-693-3329 or visit one of our local branches.  You may also find us online at SimsburyBank.com/mortgages.  We are happy to meet wherever is most convenient for you.