I’ve been asked about the Federal Reserve’s recent increase in bank rates by a few clients currently home shopping. They wonder how it’s going to affect the cost of a mortgage. The Fed finally raised the benchmark fund rate on December 16 to between 0.25 and 0.5 percent after nearly 7 years of a near zero rate. The answer is that this increase does not directly impact long-term consumer loans like purchases or refinances. So mortgage rates will not necessarily increase as a result.
The benchmark fund rate is used when banks lend money to each other overnight. It has been held at nearly zero to support the economic recovery following “the worst financial crisis and recession since the Great Depression,” MLend Financial Group states in a recent newsletter quoting Fed Chair, Janet Yellen.
So if you recently applied for a pre-approval, or soon plan to, don’t expect any surprises. Rates are projected to stay in the approximate ranges they have been for the last 6 months with new programs rolling out on a regular basis in the hopes of enticing more buyers into the market.
One of these new programs, for instance, just out from Prosperity Home Mortgage is offering conventional terms on a fixed rate, with relaxed credit requirements, use of compensating factors, unlimited use of gifted funds and increased qualifying ratios.
The particular program offers an excellent opportunity for many potential first-time home buyers that have found it difficult to save enough money for a down payment and closing costs. Or for those that had some financial trouble during the economic recovery and have been left wondering if they would qualify for a mortgage now.
With better-than-expected data in today on consumer confidence in the economy, the job market and housing, these kinds of programs can be a real boost to those ready to get started in homeownership. They deserve a close look as the stock market is poised to end in 2015 with a gain over 2014. The Associated Press is reporting today that gains will be seen more broadly in other markets, too, such as Germany, France, Britain and several Asian markets.