Interest Rates Are on the Rise

You may have heard the Federal Reserve increased its key interest rate a quarter of a percentage point in December, marking the first time it's raised this rate in almost a decade. The increase didn't occur out of the blue -- economists and other experts had predicted it for months. The Fed typically lowers one or both of the two key interest rates -- the discount rate and the Federal Funds rate -- when it wants to decrease the costs of borrowing to spur consumer spending and strengthen the overall economy. Conversely, the Fed typically raises rates when the economy is strong enough to bear it. The recent increase relays the sentiment the economy has recovered enough from the Great Recession to not need the extra economic boost that comes from super-low rates.

What does it mean?

Interest rate increases often make people anxious, especially if they were thinking about taking out a loan to buy a home or a car; however, rate increases aren't the end of the world. Although the Fed has promised any rate increases will be done gradually so as not to impede economic growth, it's clear the era of rock-bottom rates is over.

Are you thinking of buying a home?

While a rate increase primarily impacts short-term debt, it may also influence other debt, including: car loans, credit cards and mortgages. Although a quarter-point increase seems small, it may mean higher mortgage rates, especially if the Fed increases the key interest rate again this year. Depending on several factors, including your interest rate and how much you're borrowing, increases could raise your monthly mortgage payment by a few dollars or a few hundred dollars. If you've been on the fence about buying a home, think about locking into lower interest rates before they increase again.

-info taken from Buffini & Company newsletter

Please contact me today if you're thinking of buying this year - the market is already very busy!