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Are Mortgage Rates on the Rise?

In December of 2015, mortgage rates from the Federal Reserve went up for the first time in almost 10 years. Many people in the real estate industry – as well as those who choose to invest in real estate – thought that record-low interest rates were on the rise. Surprisingly, though, this is not the case. In fact, mortgages are still getting cheaper.

What’s Really Happening?

According to Freddie Mac, the average rate for a 30-year mortgage dropped to 3.79% during the fourth straight week of declines in January 2016. What’s more, the rates on 15-year fixed rate mortgages also fell to 3.07%. Although these numbers are a bit higher than where they were a year ago, they do prove a very significant point. The Federal Reserve does not solely determine the average US mortgage rate; much of the power still lies in the hands of banks and private lenders.

Mortgage rates and the Federal ReserveWhy Does the Central Bank Matter?

The central bank has left benchmark mortgage rates unchanged for the last few weeks, and many people believe this is due to the volatility in many global markets as well as Wall Street. The central bank does not control mortgage rates on its own, but it does have an effect on the rates you might pay for your mortgage. A higher federal rate makes it more expensive for the banks that provide mortgages to borrow money, and some of that expense may (and likely will) be passed down to the borrower. However, as of February 2016, the rates that well-qualified borrowers receive are still dropping.

The Current State of Things

With the low mortgage rates, and despite the Federal Reserve’s decision to increase mortgage rates, new mortgage applications went up by nearly 9% at the end of January. Nonetheless, in many markets across the country, inventory is relatively low. This means that because of the limited number of homes on the market, there is more demand than supply. This drives home prices higher, and in some parts of the country, creates a significant affordability issue.

The Shape of Things to Come

People who are involved in the real estate industry and even potential buyers and sellers want to know what they should expect if the Federal Reserve continues to raise rates. Although mortgage rates will inevitably rise due to the added expense for banks, for right now, they remain low. What’s more, experts also agree that even if interest rates do climb between now and the end of the year, homebuyers will continue to purchase homes because that increase will not be significant enough to add to the homebuyers’ monthly mortgage payments.

Although the federal government can and often does influence the amount of interest that people all over the country pay on their mortgages, it does not solely determine the average interest rates across the country. Although a rise in rates is expected before the end of 2016, for right now, rates are still dropping and it is a great time to buy or sell in Denver.

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