Okay, so everyone is talking about the interest rate increase that the Feds imposed yesterday. I wanted to take this time to share with you some insight on all this information. The Federal Reserve raised interest rates by three-quarters (.75) of a point, citing persistent inflation. Here’s what it could mean for your monthly expenses.
This is the third time in a row that the Feds have raised the target federal funds rate in an effort to cool down inflation but have raised the short-term borrowing rate a total of five times this year, including 75 basis point increases in June and July. You are probably like, “so what does have to do with me?”
The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to each other. Some consumers may not be aware that this is NOT the rate they pay, but the Fed’s moves still affect the borrowing and saving rates we see every day. This rate hike will correlate with a rise in the prime rate and immediately send financing costs higher for many forms of consumer borrowing, including mortgages.
So just to give you an idea, if you secured a 30-year fixed mortgage on a $600,000 home at a 2.6% interest rate in 2021, you have the same monthly mortgage payment as someone that just bought a $392,000 home at today’s 6.2% interest rate. It’s crazy.
Some might say that right now it is not the right time to buy; however, if you are house shopping, you shouldn’t worry too much about whether or not rates will fall. If rates do fall over the coming years, you may get an opportunity to refinance and therefore, should not feel like you are locked into today’s rates forever if you decide to buy a home in the near future. Real estate is the only asset that will hardly ever depreciate on a long-term basis and how the saying goes "you marry the house but date the rate.” Meaning that your home is a long-term purchase, while a mortgage is something you can easily move on from by refinancing.