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Rising Interest Rates affecting your Mortgage
Since 2008 the Federal Reserve has kept their interest rate at net-zero, but it looks like that is about to change. America has not seen a spike in interest rates since 2006, but with the jobless rate at 5.1% in September, it is safe to assume, financially speaking the country is on the rise. But what does raising interest rates actually mean? The higher cost of mortgages, it seems that in December the Federal Reserve will raise interest rates a quarter point.
If you currently have a mortgage or are looking to purchase a home, now is your last chance for the lowest price. Lockdown a fixed cost rate, because as the Fed raises the rates you will then benefit from a lower rate.
If you have debt with a floating, rather than fixed, the interest rate it is only going to get more pricey for you when the Fed decides to raise the interest rate. Now if you change to a fixed rate your monthly payments you will be receiving some of the lowest fixed mortgage rates in history!
The following chart from Bankrate.com shows the increase that the rise in interest rates is causing from this past September. Now that December is close by, you must act now to save your money.
Date 30-year fixed 15-year fixed 5-year ARM
September 16th rate: 4.06% 3.25% 3.28%
Change from September 9th: +0.01 +0.02 +0.04
September payment: $793.45 $1,159.40 $720.81
Change September 9th: +$0.95 +$1.60 +$3.62
As stated by Brian Rehling, a St. Louis based co-head of global fixed income strategy at Wells Fargo Investment Institute, “the most important impact of a Fed rate spike will be on loans tied to short-term or floating-rate debt.
As of November 8th, a 30-year fixed rate mortgage with a 10% down payment on a $350,000 home at 4% will cost you $1,503.86/month plus taxes, homeowner’s insurance and PMI (Private Mortgage Insurance). That same 30-year fixed rate mortgage with 10% down at 4.5% will cost you $1,596.06/month. That’s an extra $92.20/month and $33,191.54 over the 30-year life of your mortgage. If rates rise to 5% the incremental cost will go to $184.40/month and $66,383.08 over 30 years
Whether you are someone who is looking to purchase a home, or currently has a mortgage it is important to stay up to date with the rising rate.