Get ready: Mortgage rates, monthly payments on rise

(As seen in the 6/23/17 Ledger column)

The Federal Reserve voting to increase the interest rate on a Wednesday – as it did last week – doesn’t mean that mortgage rates will rise on the following Thursday.

Mortgage interest rates can best be monitored by the 10-year Treasury Bills. The yield of those bonds will dictate the mortgage interest rate.

However, all of these rates are linked as they use economic factors to determine their rates. Rising rates lift all rates.

When the prime rate was 20 percent in 1980, mortgage rates were 16.3 percent. In 1988, the prime rate was at 10 percent and mortgage rates at a mere 10.48 percent.

As time went by, rates were reduced, as in 2004, when prime hit 5.75 percent and mortgage rates were hovering around 5.83 percent. And in August of 2016, primes checked in at 3.25 percent and the mortgages were available at 3.44 percent. What a strange set of coincidences.

In short, those who feel the Fed increasing rates does not affect mortgage rates can take all of the T-Bill, bond yield jargon with them to the bank of their favorite mortgage lender and see if you can get a better deal.

Rates are on the rise, and the Fed will increase the rates again this year.

Based on the 37 years of comparisons above, I would wager that mortgage interest rates will not decrease on this news. On a loan of $176,000, an increase of three-eighths of a point would cause a monthly payment on a 30-year, fixed-rate mortgage to skyrocket by $47 per month.

Another three-eighths, another $47 per month. Add a couple of hundred dollars to the loan amount and another bump in rates, and soon we are talking about some real money.

As Smokey Robinson, the wise economist of the 1960s, wrote: “Get Ready. Get Ready.”

Richard Courtney is a real estate broker with Christianson, Patterson, Courtney, and Associates and can be reached at [email protected].