December 1st, 2015 10:11 AM by Joan Rusco
As we delve into what’s happening to the rate you will pay for a mortgage let us first talk a bit about this holiday season. It is a time of giving and giving thanks. Last month, and we at VALoansMN hope that every month of the year, we expressed our gratitude to you for giving us the opportunity to serve. It is a gift we receive from you every day of the year. Again, our most sincere thank you. Now we want to give you a piece of advice.
As you have no doubt noticed we have spent considerable space on these pages on the historic VA mortgage rates that have been available recently. We believe those days may be numbered so here’s our advice; if you, or someone you care for, is considering the need for a loan to buy or refinance a house, please, please let us at VALoansMN help you make that move sooner rather than later. We see changes coming, maybe slowly, but they are coming.
The Federal Reserve committee (commonly referred to as The Fed) responsible for much of the interest rate climate in our economy is talking rate increases. Currently the rate the Fed controls is at 0 to .25%. They expect to raise that rate to about 3.5%. That is an increase of over 3%. What might that do to your monthly payment on a VA mortgage loan?
First, we make an assumption that may or may not be accurate. The assumption we make is if the Fed raises it’s short term rate by a quarter point this month we would see a corresponding quarter point increase in the mortgage rate. It’s possible we may not see that mortgage rate increase. It is also possible that mortgage rates could increase more than a quarter point. No one, as of this writing, knows for sure what will happen. It is safe to say that as the Fed raises rates VA mortgage rates will increase eventually. Back to our assumption that rates will increase in tandem with the Federal Funds rate and what that means to your mortgage payment.
If you have borrowed $200,000 and your rate is 4% (we've recently secured mortgages for some clients even lower than this!) your monthly payment would be about $955. When the Fed hits the target of 3.5% for the Federal Funds rate, which is an increase of over 3%, that same $200,000 mortgage would require a monthly payment of $1,331 or an increase of about $376! Need we point out that the VA mortgage is much more affordable at today’s rates than what may be coming?
When will this increase occur? That is a very difficult question. Former members of the Fed are suggesting it will take around 3 years. The Fed meets every six weeks. To increase rates by over 3% in three years they would have to increase a quarter percent (point) at every other meeting for the next three years. However, it is possible the Fed could raise rates by a half a point or more at one meeting. This is considered not likely given the current state of this sluggish economy. Six months from now it could be a different story.
To repeat the advice we give you this holiday season: please, if you are seeing a need for a new mortgage loan either to purchase or refinance an existing loan, please call us soon so we can make this move more affordable than it may be in the not to distant future.Finally, we wish all of you a very happy holiday season!