How The Fed's Interest Rate Decision Affects Building A Home


After a two-day policy meeting, the Federal Reserve decided last Thursday to keep interest rates at their current rate of near zero.

The US has been in a period of economic expansion, with strong domestic spending and the lowest unemployment rate since 2008—5.1 percent according to the Labor Department in September—prompting some analysts to believe the Fed would raise rates this month.

According to the Fed’s chairwoman, Janet Yellen, “uncertainties abroad” ultimately drove the decision to keep interest rates the same. Yellen, however, did indicate that interest rate increases are likely to come later this year. The Fed has policy meetings scheduled for October and December.

So what do the interest rates mean for people looking to build a home or remodel?

According to Freddie Mac, the average fixed-mortgage rates in the US are currently 3.91 percent for 30-year loans, and 3.11 percent for 15-year loans. These are historically low borrowing rates.

The Fed’s interest rates influence borrowing rates from local banks and mortgage lenders. Basically, when the Fed raises their rates, home loan rates will likely increase soon after.

Is now the time to build or start a remodel project?

The answer isn’t so simple. The decision to build a home or start a remodel project is a big one. It requires diligent financial planning, and some initial time commitment to get rolling.

Even when the Fed begins increasing its interest rates again, the process will be slow and gradual, and so will be changes in mortgage rates.

So, let’s say you have solid credit and you’re looking to build your first home, but you want to make sure that new job you’ve landed has long-term staying power. Then, sure, it’s probably okay to wait. Waiting another year for extra peace of mind will still land you a good borrowing rate.

On the other hand, if you have been sitting on the fence about building, say, a second home or retirement home, then you’re probably thinking about getting the best borrowing rates possible. For you, financial stability has been a long trend and you’re thinking about getting the best value for your investments. Then, yes, now is the time to start this project, and lock in the lowest possible home loan rates, which will amount to tangible savings over the life of your mortgage.

Thinking about building or remodeling? Let’s talk. We’re happy to answer any questions.