How Lower Federal Interest Rates Affect Your Home-Buying Power
For months now, we’ve read the news covering the trade war between China and the U.S., particularly regarding the tariffs placed on China’s exports to the U.S. While people on one side of the aisle are saying, “It’s about time,” the other side says, “this is not going to end well.”
Most recent in a series of economic strategic moves, the Federal Reserve bank announced cutting interest rates by a quarter of a percent. What that means, basically, is that banks and borrowers are going to pay a lower interest rate to borrow money from each other. Designed to bolster confidence in borrowing, and therefore spending and hiring, a federal interest rate cut intends to keep wind in the sails of the American economy as prices of some items rise and people dependent upon favorable U.S.-China trade relations struggle.
While a lower federal interest rate could impact you in some ways, it’s not directly linked to mortgage interest rates. It’s more of a domino effect where, as banks’ interest rates are lowered, interest rates in other industries follow suit. While no one grins at the prospect of an economic downturn and all that could come with it, if you’re considering purchasing a home in the near future, it could work out in your favor.
Broadly speaking, people and government entities who have some control over economic decisions lower interest rates in order to make it easier for people to keep spending their money because
- it’s easier for your to put money into a house if your mortgage interest rate isn’t sky-high
- it’s easier to make renovations or furnish your home if your credit card company’s interest rates go lower, which could be another by-product of a lower federal interest rate.
So, what should you do?
If you’re considering buying a home and you have a steady, reliable source of income, this may be the time to make a move. Start doing the research and getting names of potential mortgage lenders, and find out what kind of rate you can get. If it’s four percent or lower, that’s pretty good.
Already own a home and a mortgage? This could be an opportunity to renegotiate your interest rate and refinance your home. If you’ve lived in the home for a year or longer, you may be eligible. Check with your current lender to find out what kind of rate you could get if you refinance, and what that process would look like. It could lower your monthly payment and the total that you pay for your home when it’s all said and done. If your income allows for a higher monthly payment, you can change the terms of your loan, turning a 30-year loan into a 15-year loan. You’ll speed up the rate at which you build equity in your home and get that much closer to being debt free. Your mortgage lender can guide you through your options and shed a lot of light on the outlook in the mortgage industry to know if now’s your best chance or if a better rate might be just around the corner.
But if experts are saying the economy is slowing down and may get worse…
We like that you’re thinking in that direction. It literally pays to be smart with your money. What would be great is if the U.S. and China could work out this trade war RIGHT after you secure that low mortgage rate. Recession crisis averted, jobs secure, and a collective sigh of relief rings out across the land.
Meanwhile, know that these industries are the ones currently most affected by the tariffs. If you’re employed in one of them, it might be a scary time to take on a new debt. As it was once said by a great king, everything exists in a delicate balance. Industries not directly affected by current economic policies may still feel some ripples. If you do take advantage of lower rates on your mortgage, your credit cards, or even student loans, it’s wise to still keep a level head. Increasing your budget and spending more than you originally had in mind is likely not in your best interest, but it may be the perfect time for you to make some reasonable investments for a better deal than you would have gotten in the past, and perhaps better than you’ll get if you wait longer.