So what happens when the Fed raises the Fed rate?
The important thing to remember is that the Fed interest rate and the mortgage rate are two completely different things.
The interests rates are still at an all time low point. Most economist do not see the interest rates going up anytime soon. They should stay at around 4% for a 30 year rate for a while and this will help buyers better afford a home and mortgage payment.
According to Ed Yardeni of Yardeni Reasearch the mortgage rates are more closely tied to the bond market rather than the Fed funds rate.
Ed Yardeni explained in a recent CNN Money article that if the mortgage interest rate went up to 4.5% by the summertime, that would cost an extra $700 per year or $58 per month on $200,000 mortgage loan.
When the mortgage rates go up the price of homes stop going up so fast. This would be welcomed by most buyers in today’s real estate market. For example, in Cambrian with zip code 95118 the Median Sales Price for Single Family Homes in January 2016 was up 25% to $1,075,000 from a year ago.
The Fed is expected to raise rates slowly over time and some experts think that the they may have to cut them again if the global economy does not improve.
According to CNN Money, when interest rates reach 5% that would signal a turning point. The small increases mostly affects those homeowners that are still looking to refinance their mortgage loans.