The Fed Raised Interest Rates in December: What Does that Mean for Me in the Year Ahead?

Wednesday, January 27th, 2016 at 12:00pm.

The Fed Raised Interest Rates in December: What Does that Mean for Me in the Year Ahead?

In December 2015, the Federal Open Market Committee (FOMC) decided to raise interest rates for the first time in seven years. This freeze in interest rates was seen as necessary in response to the worst recession since The Great Depression. But now the economy is trending upward, and the Fed is seeking a return to normalcy. The increase they have proposed is .25% – for the first of the increases. That’s right, only the first. Some economists are predicting the Fed will approve up to four increases in 2016 alone. While .25% may not seem like much, over the course of a 30-year mortgage, it adds up to a significant chunk of change.

For example, a 30-year $200,000 mortgage at 4.5% interest will bring with it monthly payments of $1,013. Increase that by .25 and the monthly payments become $1, 043. Multiply the difference by 30 and you are adding $900 to the life of the loan. If that doesn’t seem like a big deal, remember that is just the first of a potential four increases this year. 

For those who have been on the fence about buying that new home, the time to buy at a low-interest rate is now. They may never be lower in your lifetime. If you are renting and don’t envision a major move in your future, buying is the right thing to do. Rents are skyrocketing while mortgages are just now beginning a slight rise. You could be paying more each month to rent a small apartment than you would be if purchasing an entire home.

If you hesitate, you may even miss out on a larger, better home you could’ve had at the same price as lesser one. Some believe the Fed is prematurely raising the interest rates because economic inflation is still sluggish and wages are stagnant. If your dream home is getting more expensive, while your salary stays the same, you could wait yourself right out of affording it.

If you are interested in buying a home, please contact the Real Estate Specialists at the Creig Northrop Team.

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