Yesterday the Fed (FOMC) wrapped up their two day meeting deciding to leave the Fed Funds rate unchanged. How does this impact you?
The Fed announced they are going to pull back on their support of mortgage backed securities a few months earlier than previously estimated. This means that we should see mortgage rates continue to trend higher.
They also announced that instead of one rate increase to the Fed Funds rate, that next year we could see up to THREE increases. The Fed Funds rate does not directly change mortgage interest rates, however it does influence mortgage rates as mortgage rates are based on bonds (similar to stocks).
What is directly impacted by the Fed Funds rate are debts that have interest rates based on the Prime Rate. The Prime Rate follows the Fed Funds rate…so when the Fed increases the Fed Funds rate by 0.25%, then the Prime rate will be 0.25% higher. For example, as I write this post, the Prime Rate is currently 3.25% – should the Fed increase the Funds rate by 0.25%, then Prime will be 3.500%.
Home equity loans and credit card interest rates are often based on the Prime Rate. I was reading yesterday that the average annual percentage rate on credit cards opened this month is 19.55%! Based on the Fed’s comments yesterday, this rate is set to go up next year.
If you have credit card debt, or any debt based on the prime rate, you might want to look at paying it off.
If you own a home, you might be able to refinance assuming you have enough home equity. Mortgage rates are still extremely low. Many refinances are qualifying to not have an appraisal, which helps keep the cost down and is an added convenience.
If you are considering refinancing or buying a home located anywhere in Washington state, I’m happy to help you! Click here for a no-hassle rate quote showing your potential options.
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