By: Kelly Smith, Marketing Director
If you’re a renter thinking of buying your first home or are just considering a move in 2017, you may have some serious concerns about the cost of a loan right now. Long-term fixed mortgage interest rates recently crept into the 4% range when the Federal Reserve raised its benchmark rate in December 2016 for the second time since the financial crisis in 2008. The Fed’s kept the rate low intentionally to encourage spending and lending during a deflated economy.
As the economy improves and unemployment remains low, we can expect to see interest rates continue to rise to more normal levels. Tim Manni, Mortgage Expert at Nerd Wallet, had this to say,
“Homebuyers shouldn’t be particularly concerned with [last week’s] Fed move. Even with rates hovering over 4 percent, they’re still historically low. Most market observers are expecting a gradual rise in home loan rates in the near term, anticipating mortgage rates to stay under 5 percent through 2017.” 
Even 5% is low compared to the rates seasoned homebuyers have seen in the past few decades. Historically, we are still looking at just over $.04 paid in interest for every dollar borrowed. The current rates are hovering at just ov
er 4% and still make investing in a home purchase very appealing.
That being said, if the rates do increase by a full percentage point over the course of this year, which is the projection, buyers could see a considerable difference in their monthly mortgage payment as compared to today’s rates. The NY Times posed this example to illustrate this point:
The average interest rate on a mortgage this month is 4.3 percent, according to LendingTree, and the average loan on a 30-year, fixed-rate mortgage is worth about $237,000. If the borrowing rate were to rise by, say, another percentage point in the coming year, this would mean an additional $138 a month on the average mortgage — leading to nearly $50,000 in added interest over the duration of the loan. 
On the flip side, the Federal Housing Administration (FHA), the government entity that supplies loans up to 96.5% of purchase price for borrowers who can’t pay 20% percent down, announced a reduction in primary mortgage insurance (PMI) rates. This means that the additional mortgage insurance premium for FHA loan borrowers will be less this year.
According to the President of the National Association of Realtors® (NAR), William E. Brown, more buyers will be now be able to qualify for an FHA loan.
“This is a question of simple math,” Brown said. “Every time we cut the cost of mortgage insurance it means more borrowers meet the debt-to-income ratio required to purchase a home.” 
So what does all this mean for people who are considering a home purchase in 2017? With the improving economy, interest rates are definitely on the rise. However, the rise will be gradual and the cost to borrow will still remain historically low. Borrowers who don’t have twenty percent saved as a down payment (typically many first time homebuyers who don’t have equity built from the sale of their previous home) or who may not have qualified for FHA loans in the past will see the benefit of reduced mortgage interest rates which results in a lower monthly mortgage payment.
What’s the forecast for homebuyers in 2017? More sun.