I imagine you’ve heard about the sharp and predictable rise in mortgage rates over the last couple months. Record inflation brought on by a host of converging forces: supply line interruption due to Covid, too much stimulus money, a hyper-restrictive energy policy, the Russians and some bad luck. Now that we’ve spread the blame let’s talk about the Fed’s. The Federal Reserve has a limited number of levers they can pull, and they all involve restricting demand. The premise is simple, increase interest rates and things cost more. When things (goods and services) cost more people buy less. 70%~ of the US Gross National Product is consumer spending so convincing the consumer to spend less is the goal.
The Federal Funds rate now hovering around 2.5% (up from 0%), this figure includes the most recent increase of .75%. This rate translates historically into a 5%~ 30 year fixed mortgage rate, which is where we are today (subject to daily market fluctuations). The Fed’s were definitely late to the party, but now seem willing to stay to the end and drink the last beer. Will the Fed’s call an Uber or try to drive home, we’ll see. If they raise rates too slowly inflation may persist for years. If they raise rates too quickly (or too much) it will surely lead to a recession.
You might be asking yourself, how will higher rates affect me? Of course we’ve seem fixed rate mortgage rates rise but the Home Equity Line of Credit (HELOC) has moved significantly. Your HELOC rates adjust monthly based upon the Prime rate which has risen from 3.25% 28 months ago to 5.5% today (plus a margin). This will drive many HELOC rates to 7.5%~ and may catch some borrowers off-guard. Credit card, auto and consumer loan rates are also on the rise. Given these higher rates some borrowers may benefit from a reconciliation loan, give me a call to see if you can benefit.
For tailored advice and the latest insights specific to your needs, don’t hesitate to contact Summit Mortgage. Summit can help you navigate your mortgage options and find the best fit for your financial future.