Even If the Fed Raises Rates, Bank Stocks Could Suffer

“We expect rates to remain calm leading up to Thursday’s Federal Open Market Committee statement as markets eagerly anticipate any signal or action from the Fed on interest rates”.

“Mortgage rates held steady last week”, said Erin Lantz, vice president of mortgages at Zillow.

“While lenders may temporarily raise rates, they’ll probably lower them again in a repeat performance of what we saw when the Fed announced it was ending the QE program: rates jumped up by nearly a point; applications cratered; home sales slowed down; rates returned to lower levels; home sales and loan applications picked back up”. When negative or lower-than-expected financial reporting is made public, investors tend to shy away from stocks, causing a sell-off, shifting their monies into the fixed-income/bond market, which drives yields up and mortgage rates down. One of the biggest headwinds in the housing market today is tight credit.

You cannot completely avoid the financial changes that happen after the interest rate is increased, but you can do many things right now to save yourself some money. “When we look around at the economy”, he says, “we don’t warrant a zero rate”.

Jonathan Smoke, chief economist for realtor.com, is not so sure about that.

“High cost markets and markets where first-time buyers have been just barely able to qualify this year are most at risk of seeing more failed mortgage applications as a result of higher debt burdens triggered by higher rates”, said Smoke.

Zillow Mortgages quoted that Mortgage rates for 30-year fixed mortgages rose this week with the current rate borrowers at 3.75 percent, up 1 basis point from last week.

Refinance Your ARM Mortgage – If you now have an adjustable rate mortgage (ARM), you should strongly consider looking for a fixed-rate mortgage instead. When rates reach 4.53%, that same loan amount would result in a monthly payment of $1,175, an increase of 6%. Smoke also forecast that the average debt-to-income ratio could increase by four percent and as much as seven percent of mortgage applications could be rejected in this new environment. The average debt-to-income ratio for mortgages in the first half of 2015 was 35.5%.

Have you ever heard about the great low mortgage rates in the media, only to call a mortgage company and receive conflicting information?

Remember, by the time you hear it in the news, the rate and pricing have likely already changed. Popular 15 year fixed rate loans at the bank are published at 3.125% today yielding an April of 3.252%. After the rate hike goes into effect, you can expect to see fewer of these opportunities.