In the middle of December, the Federal Reserve increased interest rates by .25 percent for only the second time in a decade. While the increase by the Fed is only an increase for the short-term rate, it does have the ability to impact the longer-term rates such as mortgage loans. As a home buyer or seller along the Jersey Shore, here is what you need to know about the most recent rate hike.
If you are currently a homeowner along the Shore and have a home equity line of credit (HELOC), you will see your current rate increase by .25 percent. A .25 percent increase may not seem like much, but it’s what to come that is more concerning. It’s anticipated that the Feds will be increasing rates three more times in 2017.
The rates on HELOCs are tied to the prime rate and a margin plus. The prime rate was 3.75 percent and if you currently have a normal HELOC then you would have a margin of 2 which in turn would make your new rate 5.75 percent. This number will continue to rise with each rate hike.
If you look at the prime rate average over the last 20 years it comes to 5.39 percent and reached a high of even 9.5 percent at one time. If you figure in the 2 percent margin for a HELOC with an average prime rate of 5.39 percent you are looking at a rate of 7.39 percent. When it comes to monthly payments you will pay an additional $137 per month for every $100,000 on your loan.
The good news is even with mortgage rates increasing, there are still many homeowners out there who could benefit from a mortgage refinance on their current home loan.
If buying a home along the Jersey Shore is in your plans for 2017 – now would be the time to buy. To qualify for a mortgage loan, lenders will be looking at your debt-to-income (DTI) ratio. Many lenders are looking for your DTI not to exceed 43 percent. With rates increasing, it pushes your DTI higher, but not as much as you may have thought.
On average we have seen mortgage interest rates increase by .5 percent, but that only equates to a 1 percent increase to your DTI. To ease up on your DTI to counteract mortgage rate increases – focus on paying down your credit card balances. This allows you to continue to search for a home in your original price range.
What To Do Now?
Now would be the time for those looking to buy a home to meet with potential lenders. As the economy continues to improve and mortgage rates rise throughout the year you will see your buying power decrease. Don’t wait for a later time, make your move now!
The Ferzoco Group is only comprised of the best and most experienced real estate agents, who are here to work for you. Contact us today via email or give us a call directly at (609) 399-5454 and we will provide you with the exceptional service you deserve.