Will Rising Interest Rates End Vancouvers Home Mortgage Financing Boom

With the Fed's projected interest rate raises over the next year, mortgage rates are soon to follow. Experts advise that it is not too late to refinance, as rates are still relatively low.

Vancouver, WA (PRWEB) December 24, 2004 -- On December 14, 2004, the U.S. Federal Reserve raised interest rates for a fifth time this year, increasing its key overnight rate by a quarter of percentage point to 2.25 per cent. The prime interest rate which affects most Home Equity Lines and consumer loans was raised by an equivalent quarter percent settling at 5.25%. The Fed began raising rates in a move aimed at heading off any potentially damaging upward spike in inflation.

Before it began its run of rate hikes in June of 2004, the Fed had kept interest rates at a 46-year low of 1 per cent, since June 2003. The first of the Fed's eight scheduled interest rates decisions in 2005 is scheduled for Feb. 2. Economists see nothing in the Federal Reserves decision to warrant a change in our view that short-term U.S. interest rates are likely to continue rising fairly steadily through the first half of 2005.

The impending rise in interest rates does not bode well for the mortgage industry and mortgage interest rates in general. Although mortgage rates are not directly tied to the Federal Funds Rate or Prime Rate, long-term rates for mortgages generally follow the same upward trend. According to mortgage broker, Mikel Erdman, The Fed raises interest rates in order to control the growth of the economy and slow potential inflation. As the economy heats up, there are less funds available to lend for long term investments which causes a spike in mortgage interest rates. It appears that this upward movement will last throughout 2005."

Mortgage rates typically go hand-in-hand with economic cycles, falling when loan demand is low - because of high inflation and high unemployment, for instance - and climbing when demand is higher, such as periods of high employment and healthy GDP growth.

Interest rates go up on the strength of the economy, Erdman noted. Overall, the strong economy will mean more jobs and better stock market performance which have both been lacking over the last few years. Unfortunately, the decade of rock-bottom interest rates may be coming to a close.

Erdman reminds consumers that when it looks like rates are going to rise, it's best to lock in the low fixed rate or move off of the fence with a pending financial transaction. Now is not the time to wait. Too many times we have seen people who wait too long miss the best opportunities. Rates are still at extremely advantageous levels and the availability for low-payment loans can get many buyers into homes."

Mikel Erdman is the president of Metro Home Mortgage Company based in Vancouver, WA. The company is licensed to lend in the states of Oregon and Washington. He can be reached at (888) 823-6635.

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