The Federal Reserve made headlines this week with its announcement of a pause in interest rate hikes. The Fed is focused on achieving maximum employment and maintaining inflation at a rate of 2 percent over the longer run. As a result, the target range for the federal funds rate will remain steady at 5-1/4 to 5-1/2 percent. While this pause doesn't lower interest rates, it does provide some relief for Americans. Homebuyers, in particular, can benefit from this pause as mortgage rates are currently at historic highs. However, to take advantage of the pause, homebuyers should consider making some smart moves now.
One smart move for homebuyers is to lock in today's mortgage rate. Although rates are currently paused, experts predict a final increase before the end of 2023. Therefore, it is advisable for buyers to secure a mortgage rate now, even if it is higher compared to previous years. Waiting for rates to drop again may not be feasible, so taking advantage of the current pause is crucial. Additionally, buyers can always unlock their rate for a lower one in the future or refinance their mortgage for a better rate.
Another option for homebuyers is to consider buying mortgage points. Mortgage points involve paying a fee to the lender, either at closing or by rolling it into the overall mortgage loan. This fee guarantees a lower interest rate on the mortgage. While it is important to stay in the home long enough to recover the cost of the mortgage points, this option can result in long-term savings. Homebuyers should also consider the potential costs of a refinance in the near future, especially if they anticipate lower refinance rates in the coming years.
Homebuyers can also explore adjustable-rate mortgages (ARMs) as a way to secure a lower interest rate. ARMs offer an initial lower rate, but the rate adjusts over time, potentially increasing to a higher rate in the future. However, if the rate does rise, homeowners can refinance to a fixed, lower rate. This option requires thorough research and consultation with lenders to assess its suitability.
Overall, the pause in interest rate hikes allows borrowers to evaluate their financial situation and take necessary actions. For homebuyers, it presents an opportunity to lock in a rate before potential increases later in the year. Additionally, buyers can explore mortgage points and ARMs to secure lower interest rates. Although rates are still elevated, these smart moves can alleviate some of the burdens buyers have faced in recent years.
