What to Expect When Interest Rates Go Up

What to Expect When Interest Rates Go Up

2 min read
Harrison Stowe Read More

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With mortgage rates at record lows, and the housing market entering a period of prolonged stability, the rate of home purchases across the country has picked up drastically. Housing prices are escalating with exceptional speed, and have done so in regions with such drastic swiftness that it’s causing concerns around property market stability. Taking all this into consideration, there’s a respectable chance interest rates may be lifted before the close of the year, especially if policymakers are concerned with steadying the ongoing recovery.

That being said, it’s always well advised for homeowners to stay aware of the consequences (positive and negative) of elevated interest rates. Forbes recently published a piece from Investopedia that details the repercussions of rising interest rates. In terms of housing market impact, the possibilities are manifold.

The Good

As an overarching market theme, those with interest-based investments tend to draw elevated financial gains into their portfolios. As a general trend, older investors tend to own a greater volume of interest-based investments, and the elevation of interest rates leaves many boomers in securer hands for retirement. As the current generation of pending retirees gets the chance to exhale and prepare for their golden years, they’re more liable to sell their existing properties and move into homes for the next stage of their lives. A threshold of houses that had been kept from the seller’s market may enter the field, having a mediating impact on regional housing prices, even to the point of proving inviting for 30-somethings who might otherwise be turned away by higher property values.

The Complicated

With interest rates having remained suppressed at low rates for as long as they have, there’s a chance that many of those considering mortgages, or currently managing one, may not be entirely prepared for an elevation in interested rates. For homeowners currently holding an adjustable-rate mortgage, there might be swift moves to refinance prior to an expectation in the rise of interest rates. Alternately, considering much recent economic forecasting, there’s a chance that current homeowners may want to consider the opportunity to refinance their interest rates before interest rates ascend.

Additionally, with interest rates likely to rise, there may be a move towards fixed-rate above adjustable rate mortgages. Fixed-rate mortgages, thought tied to the valuation of US Treasury bonds, provide an arguably greater degree of rate stability in the face of future elevation in interest rates. Adjustable-rate mortgages generally involve greater diversity in the number of variables that determine their interest rate. Considering that the market indexes (as opposed to financial barometers in the hands of the public sector) stand as a major anchor of adjustable rate mortgages, they might yield greater levels of volatility, especially when combined with a still-recovering economy and climbing federal interest rates.

Ultimately, these concerns will only become concrete when the Federal Reserve decides to elevate the national interest rate. Until then, both current homeowners and prospective buyers have some leeway to determine how to handle their home loans in anticipation.

Photo: Pensiero