Are you looking to buy a new home or refinance? Or, do you currently have an adjustable rate mortage (ARM)? Are you wondering what the Fed’s recent short-term interest rate hike means for you?

After 7 years of historic level rates, the Federal Reserve raised the interest rate on Dec. 16 to a range of 0.25% to 0.5%. While long-term mortgage rates aren’t directly affected by the Fed, this rate hike will impact millions of homeowners and buyers in the long run as mortgage rates gradually raise over time. Last week, before the announcement, the average 30-year fixed mortgage rate inched up to 3.95%. Over the next year, experts expect 30-year mortgage rates to hover from 3.9% to 4.1%.

But even a small increase in mortgage rates can make it harder for borrowers to qualify for a loan, because of higher debt-to-income ratios caused by the higher rates. So if you’re a homebuyer, a borrower looking to refinance or a homeowner with an ARM, here are some things you can do:

First-time Homebuyers

• May need to lower your target home price since each half point (0.50%) increase in the interest rate can increase your monthly mortgage payment.
• May have to look for a smaller home, one with fewer amenities or a home in more affordable area with a longer commute.
• Work on improving your credit score so you qualify for a lower mortgage rate. Reduce debt. Check your credit report for errors.
• Save as much as you can for your down payment.

Repeat Homebuyers

• Expect your future interest rate may be higher than your current one.
• Research home values and conduct cost-of-living comparisons if you’re moving from one city to another.
• Carefully consider your options if you’re thinking of purchasing a larger, newer home, which will likely have a higher price and interest rate.

Home Owners Seeking to Refinance

• Compare the interest rate you’re paying against current interest rates to determine if refinancing makes sense.
• Consider converting a current ARM to a fixed-rate home loan, especially if you plan to stay in your home for several more years.

If you’re considering buying or refinancing a home, get advice from the mortgage specialists at Grandview Lending. We can help you evaluate your current situation, discuss what you can afford and find you the best mortgage loan for your needs with the best interest rate – potentially saving you thousands of dollars in interest costs. Give us a call today at 317.255.0062, so we can start the loan application process and lock in your fixed rate sooner rather than later.

Photo credit: 123RF / Yauhen Korabau