Today, July 31st, The Federal Reserve announced it will not be dropping interest rates. Many assumed that there would be changes based on recent good news from other economic reports, but the Fed stated “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”
After continued speculation all week, this comes as a surprise to some. Although the Fed will still have an opportunity or two to drop rates, many continue to wait for changes in interest rates before making huge financial decisions. Right now, the housing market will continue to be impacted the most by interest rates, at least for the average citizens. With housing prices at an all-time high, many hoped to find relief from the Fed. Let’s review how this impacts you, and what decisions you should make based on this news.
Why It Matters
Interest can cost homeowners hundreds of thousands of dollars over the life of a 30-year mortgage. The difference of 2.5 points in interest can cause a homeowner purchasing a $400k house nearly $200k in interest. If you’re interested, check out this mortgage calculator to learn more. This leads to the question: Should I wait until interest rates are lower? The short answer is probably not.
There are a few things to consider when purchasing a new home. We should consider interest rates, home value/cost, personal credit ratings, down payments, and more. If you feel financially secure, with a strong down payment and a quality budget, don’t wait for the Federal Reserve to decide for you. You might look at your credit rating and realize it’s too low. In that case, your interest rates are going to increase when you apply for your mortgage. Use this time to improve your credit rating and increase your downpayment to make your purchase. But once you are ready, it’s likely the best choice to make the purchase sooner than later. Waiting for government entities or organizations to make your decisions for you can be a timid mistake to make. What happens if interest rates go up? What happens if interest rates stay the same for longer?
Truly the only risk-free option is to buy a house outright with no mortgage and insurance/tax payments in hand for the next few years. Yet we all know, for 99% of people this is not a realistic option. Once you’re ready and financially secure, feel free to make the purchase. If interest rates are too high now, you can refinance your mortgage for a better rate in a few months or a few years.
If you are trying to learn how to increase your financial literacy or build a budget, check out more of our resources here.
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