Consumer Wise: Impact of the interest rate hike

By Angie Moreschi, Consumer Wise Host
Last Updated: Tuesday, January 03, 2017, 8:17 AM EST

Folks looking to buy a house in Florida, like the Taylors, hope to lock in a low interest rate now before it goes higher.

“When you’re close to retirement and on a limited income, you don’t want your monthly payments to be going up on you,” potential homebuyer Carlton Taylor said.

The Fed’s quarter point interest rate hike in December, only the second in 10 years, is sending a message: The days of historically low mortgage rates could be numbered.

Long-time real estate agent Vince Arcuri, president of Cooperative Real Estate in Tampa Bay, said rising rates are not all bad for buyers, given the recent explosion in Florida home values and shortage of inventory.

“There’s probably gonna be room for negotiation in 2017, as opposed to last year, when people were having to get into bidding wars to get a home that they ‘Eh’ kinda liked.” Arcuri said.

Interest rates get trickier when you’re looking to refinance. You have to consider your current interest rate and how long you’ll be in the home; whether the savings over time off-set the fees.

A Good Faith Estimate gives you a reasonable estimate of the loan terms and the settlement charges.

Typical refinancing costs (should be listed in your good faith estimate):

1.         Mortgage application fee: fee to apply — ranges $250 to 500

2.         Appraisal Report: Most lenders require an appraisal to determine whether the home has enough value to quality for a new mortgage load.  Cost ranges from $300- $600

3.         Loan origination fee: typically about 1% of the loan value, so if your principle is $200,000, the fee would be about $2,000.

4.         Document preparation fee: Lenders generally charge $200 to $500

5.         Flood Certification: Mandatory in some areas $50 to $150

6.         Title Search: $200 to 400

7.         Title Insurance: $400 to 800

8.         Recording Fee: County/City fee to handle the paperwork $25 to $250

When it comes to the cost of re-financing, if your principal is $200,000, expect to pay about 1.5 percent of that or $3,000 in closing costs.  Bottom line: you’ll have to crunch the numbers to make sure you’ll save enough money over time to make it worth paying the big fee.

If you are planning to get a mortgage, monitor your credit history and score until your loan closes. The best mortgage rates usually go to borrowers with credit scores of 720 or higher. You may still get a mortgage with a score of 680, but lower scores will mean higher rates or higher closing costs.

“If you’re planning to move in the next three years, I’d say probably not to refinance. Why? Because the fees your gonna have in,” Arcuri said.  “Despite the fact that you see advertisements on TV where people say ‘No, it’s free’ or ‘I’ll pay your…’ what doesn’t come out in the rinse, comes out in the wash. You’re usually financing those costs into the mortgage.”

Refinancing is really a case by case evaluation, but those looking to buy definitely have more incentive to lock-in low rates now while they last.

The Fed is expected to raise interest rates three times in 2017, but that’s not an absolute. The economy could start to slow down again, and the Fed could just as easily turn around and stall rates or lower them again.  Remember, no guarantees.

For the latest bank rates, click here.