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Homeowners can relax about mortgage rates

Posted on Monday, October 5, 2015 at 9:18:35 AM

Homebuyers who plan on scouring listings, visiting open houses and applying for residential financing in the near future may worry about the prospect of the Federal Reserve bumping up the benchmark interest rate, but they shouldn't be all that concerned. 

The Fed was expected to raise the benchmark rate - which would affect other interest rates, including those for mortgages - in September, but did not due to fears about how the move could set back a slowing economic recovery. The bank is now expected to bump up rates before the end of the year, likely in December - though there's no guarantees, especially after another weak jobs report. However, homebuyers shouldn't rush to squeeze residential financing in before the rate increase, according to The New York Times. 

That's because though Fed policy and mortgage rates are tied together, the relationship is loose, Jonathan Smoke, the chief economist for Realtor.com, told the news outlet. Mortgage rates should increase gradually through 12 months following an interest rate hike, he explained. That will give homeowners plenty of time to qualify for affordable residential financing, even after the Fed makes its move. And if homebuyers want to push their interest rates down even further, they have options. These include prepaying on interest, keeping up their credit scores and making larger down payments.