Fed rate hike and what this means to you ...

    Vuong Report

    December 18, 2015

    The Federal Reserve raised interest rates for the first time in almost a decade.

    How much did rates go up you ask?
    • The Fed Funds rate went up by 0.25%, which is not a lot.

    What does this mean to you?

    • Hiking rates mean the Fed is making “money” more expensive. Higher rates essentially mean higher borrowing cost.

    Wait but won’t my savings rate go up to?

    • According to the NY Times, consumers may be able to find slightly higher-yielding savings accounts and certificates of deposit, though the returns will be meager.

    When does the interest rate hike kick in?

    • According to realtor.com it’s already kicked in! The Fed doesn’t raise interest rates for consumers—it sets a target for the federal funds rate, which is the rate at which banks borrow money. In turn, banks pass on a similar rate to customers. And it took Wells Fargo just 12 minutes after the Fed’s announcement to raise its prime rate for borrowers.

    Lawrence Yun, chief economist for the National Association of REALTORS®, says “an uptick in short-term rates shouldn’t have a big effect on those looking to borrow” .... However lets look at the numbers as the Fed pledged a gradual pace of increases… Below is a chart showing a 30 Year $300,000 loan at interest rates between 4% - 5%

      The payment on a 30 year $300,000 loan will increase 12% for every 1% increase in interest. At 4% the payments will be $1,432.25, at 5% the payment will be $1,610.46 on the same $300,000 loan.

      For every 1% increase in the interest rate, expect to pay an additional $64,000 in interest over the life of the loan…

      I have a home right now, what should I do?

      • If you qualify, consider refinancing if the savings vs. costs make sense.

      Will it be harder to sell a house?

      • According to Jonathan Smoke, Senior Economist at Realtor.com, “Not in most markets initially, as rates are still very low by historical standards and demand is much stronger than supply”

      If you have any questions, call or text me at 617-276-5352 or email me at Peter.Vuong@gmail.com

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        For more information, please contact Peter Vuong.