Dennis Lynch, the once high-flying portfolio manager turned homebuyer in Rumson, NJ, explains what the Federal Reserve’s decision to raise interest rates Wednesday means for homebuyers and will impact homeowners considering refinancing their mortgages. “The Fed’s decision to raise interest rates is not going to affect the average person in their everyday life,” says Lynch, who has purchased three homes since making his most recent one in Rumson. “But it sets the trajectory for the future of interest rates. There will be lenders and mortgage companies on both sides of this argument. One will say that interest rates should be raised as quickly as possible, and another will say that they should have never been raised at all.”
Dennis Lynch notes that he has seen pre-approvals for conventional mortgage loans drop to just above 5 percent and possibly below 5 percent. The Fed raised its key short-term interest rate by a quarter percentage point to between 0.5 and 0.75 percent, the second increase in three months. The central bank raised its key short-term interest rate in December by a quarter point to a range of 0.5 to 0.75 percent, which is still very low by historical standards. Still, it was the first sign of the Fed beginning to return rates more to normal levels following the economic downturn that occurred just over eight years ago at the end of 2007.
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The question of whether or not the Fed should begin raising rates is a matter of perspective. Some economists and homebuyers call for immediate action, while others believe that interest rates should stay at nearly zero percent until the economy kicks into gear again. When the time comes to take out a home loan, a bank or mortgage lender can tell you what your options will be, but it is not clear yet whether or not interest rates will rise further or if they will start to remain relatively flat.