Anyone interested in buying a home with a mortgage has probably heard about rising mortgage rates recently. Rates have been steadily climbing since 2022 and are almost double what they were a year ago. Whether mortgage rates go up or down, underlying interest rates set by the Federal Reserve always affect them somewhat.
Learn more below about how rising rates are affecting mortgage rates. Then, if you need help with your next real estate transaction, the Illinois real estate attorneys at Covert Marrero Covert LLP are ready to assist.
Why Do Mortgage Rates Go Up With Interest Rates?
When underlying interest rates rise, mortgages are more expensive than their rates. This makes buying a home more costly for most Americans. When homes cost more to purchase, this usually slows the housing market.
Experian explains that when the Federal Reserve raises rates, it alters its target for the federal funds rate. This is the rate that the board of the Fed advises banks to charge when they provide loans to other banks.
For the most part, banks put 3% on top of the federal funds rate when establishing the prime rate for customers. So, for example, the federal fund’s target rate was 1.75% in July 2022, and the prime rate was 4.75%.
If you have a fixed-rate mortgage already, the good news is the rising mortgage rates do not affect you. However, if you have an adjustable-rate mortgage, the increasing rates could cost you more when the fixed period expires.
What Happened In 2022 To Mortgage Rates?
In 2022, the US Federal Reserve raised the federal fund’s interest rates several times due to rising inflation. Increasing interest rates make borrowing money for homes, cars, credit cards, and much more expensive. Increasing interest rates is the primary tool that the Fed has to slow the economy and tame inflation.
While paying a higher interest rate on a mortgage is not what most people want, slowing economic activity reduces inflation, and that keeps prices for everything else under control.
For 2023, many financial experts expect we will have peak mortgage rates in the 6-7% range. Some expect rates to level off at around 5% to 5.5% in 2023. However, we may not see 3% rates again for a long time.
How To Save On Your Mortgage
When rates are rising, everyone wants to save on monthly payments. How? First, put down 20%, so you don’t have to pay mortgage insurance. Then, if you think you will only be in the home for a few years, consider an adjustable-rate loan for three or five years with a lower rate.
Contact An Illinois Real Estate Attorney Now
Are you interested in buying a home in popular Schaumburg communities like Haverford, Hidden Ponds, or Spring Cove? Then you will be interested in getting the best mortgage loan at the lowest rate. With so much turmoil in the real estate market and rising rates, now is the time to rely on an Illinois real estate attorney for help with the transaction.
Our attorneys at Covert Marrero Covert LLP can help with your next real estate purchase. Please contact our Illinois real estate attorneys today at 630-717-2783. Our attorneys work in the communities of Naperville, Warrenville, and Schaumburg.