The Federal Reserve (“The Fed”) has raised its benchmark interest rate for the third time in a year to help combat record-high inflation. These changes have sent many borrowers scrambling to get debts subject to interest rate increases paid off quickly. But what about long-term loans like mortgages, how are they affected by The Fed’s decisions?
Interest rates are what lenders will charge customers who want to borrow money from them. The actual rate a borrower is charged is dependent on several factors, including:
New mortgage applicants should expect a bit of sticker shock with the latest interest rates, especially compared to the last few years. Throughout the COVID-19 pandemic, interest rates for all types of loans were near historic lows. Unfortunately, as demand began to outpace supply, inflation rates began to rise, causing prices of goods and services to increase.
To combat this, The Fed began to enact a series of benchmark rate increases to rebalance supply and demand. The more expensive it is to borrow money, the lower demand for loans which in turn allows supplies to increase.
Consequently, when The Fed raised rates to combat inflation, it created a ripple effect across all lenders that touched credit cards, personal loans, and mortgages.
For those currently in fixed-rate mortgages, you shouldn’t expect to see any interest rate increase. Those with variable-rate mortgages, however, should expect notification of rate increases in their mailboxes soon.
New mortgage applicants should expect significant increases even from last year’s rates.
While the record-low rates in 2020 aren’t coming back soon, there is still hope for more competitive rates soon.
While The Fed’s rate increases will impact the price of homes, it’s important to remember that not all mortgages are created equal. Apply for a loan that best suits your needs, and be patient as rates adjust towards more reasonable levels.
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