What Does the Fed Rate Hike Mean to You?

What Does the Fed Rate Hike Mean to You?

“I believe the message is still how low interest rates are compared to the average over the last 10 to 15 years. Affordability is still above 30% in California which means 30% of the families in California can still qualify for a mortgage based on their income.” – Bill Facendini, President & CEO

Source: The Los Angeles Times

The Los Angeles Times advises potential home buyers to “proceed as planned” after the Federal Reserve Board announced Wednesday that it would raise interest rates.

The Fed raised the interest rate by 0.25 percent, and the next step for consumers depends on which side of the saving-borrowing divide they stand. The Times answers pressing questions from homeowners, home shoppers, and investors.

Making sense of the story

  • If you’re all set to buy, don’t let moderately higher mortgage rates worry you. Proceed according to plan. Although the long-term outlook seems to indicate steadily rising interest rates, we’re building on very low ground. You know that whole “historically low mortgage rates” thing you’ve heard for the last few years? Yeah, we’re still there.
  • Yes, your buying power can be affected by higher interest rates, but that can also be offset by the better wages and greater employment opportunities of an improving economy.
  • Thirty-year fixed mortgage rates rose more than half a percentage point in the four weeks after the election of Donald Trump, according to the NerdWallet Mortgage Rate Index. Rates are solidly over 4 percent for the first time this year. On a 30-year fixed-rate mortgage for $300,000, each half-point increase adds close to $100 a month to your payment.
  • With additional Fed rate hikes expected next year, mortgage rates may have as much as another half a percentage point to go. That would put home loan interest rates just under 5 percent by the end of 2017. Refinance activity has already taken a hit because rates have climbed to their highest levels since July 2015.
  • If you have an adjustable-rate mortgage, you’ll probably see your payments increase over the next year, depending on how often your rate resets. Keep an eye on mortgage rates and consider moving to a fixed-rate loan. You may want to begin the mortgage shopping process soon if you intend to stay in your home for a few years.


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