By Bob Schwartz, CRS,
www.brokerforyou.com All rights reserved.
After the latest rate increases by
the Fed, it does appear that the real reason behind the
Fed action is to apply the brakes on inflation. The Fed
seems confident that economic growth is on track but
wary that costlier energy could "fuel" dangerous
inflation. From all reports it is working. All types of
borrowing will cost more. On the "Sunny-Side" savers
will shortly see a bump in the meager interest they are
receiving as deposit interest runs opposite to loan
The Federal reserve raised the Fed Funds Rate 1/4%. The
federal funds rate is the rate banks charge each other
for overnight loans to comply with the Fed's reserve
requirements. By buying or selling Treasurys in the
market, the Fed can set the interest rate and influence
the price of credit. The Prime Rate, that many members
understand will shortly be raised the same amount.
What Does It Mean To You?
Adjustable Rate Mortgages
ARMs have the most one for one relationship with the Fed
Funds rate -- they are usually indexed against the
one-year Treasuries which are tied closely to the Fed
Funds Rate. Every borrower will feel the pain when these
rates go up
San Diego real estate
borrowers who recently got an ARM may know that their
rate can only go up a maximum 2 points
If interest rates go up two percentage points on a
$216,000 mortgage ( About the average in the U.S.)
Borrowers could be on the tab for $269 more a month.
Fixed Rate Mortgages
The Fed plans deliberate future increases also meaning
fixed mortgage rates may continue their rise.
If Mortgage rates go up 1 Point, the above $216,000 loan
would cost $140 more per month (5.4% vs 6.4%
Lines of Credit Tied To
These loans are mostly always tied to the Prime rate so
expect a rise in the very near future.
Home Equity Loans
These loans are ties to the equity in the home and are
pegged to one-year treasury yields or the prime, which
move in lockstep with the Fed rate.
If you are in the process of borrowing now—It may pay to
LOCK IN THE RATE as the full effect may not hit
for a few more weeks. Than, look to pay about $100 more
per month on $100K loan. Be sure to visit our top rated
San Diego real
ABOUT THE AUTHOR Bob Schwartz, is a Certified Residential
Specialist, CA licensed real estate broker with
Diego real estate. Bob has over 27 years of
residential real estate experience, authored a number of
published articles and served as an expert witness for
San Diego legal firms.
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