The Federal Reserve decision is expected to be released sometime on March 15th, 2017. With this, interest rates will likely rise. However, what does that mean for consumers?
The benchmark for short-term interest rates is likely to increase by a quarter percent, says USA Today, which will have a domino effect on the American economy—especially as it pushes up rates for mortgages, credit cards, and small business loans.
Adjustable Rate Mortgages and Home Equity Will Be Hit the Hardest
If the quarter percentage does occur, those with credit card debts, adjustable rate mortgages and home equity credit lines will be affected the most. The cumulative effect is what economy analysts are most worried about because the Fed has already been increasing rates from December 2015 to December 2016.
The interest rates will result in hundreds of dollars more per month for consumers, especially HELOC borrowers and those with adjustable rates.
Improved Job Market Gives the Fed Motivation
While an improved economy and job market are great for consumers, it’s bad news when it comes to interest rates. The Federal Reserve went from a 20% chance of increasing interest rates to a 100% chance because of the economy gains and unemployment rates reported in February 2017.
Each economy condition the Fed set for themselves to justify an increase in interest rates was met; therefore, at the IIF conference in Frankfurt, Frenkel announced that increase was likely.
The Federal Reserve feels that the inflationary pressures are reaching the 2% target the Fed has set. The rate-setting Federal Open Market Committee is meeting to decide if they will increase the rates and for how much, but most experts feel the increase is inevitable.
How Many Rate Increases for 2017?
The real question will be how many more increases will occur in 2017—especially if the Federal Reserve feels the economy will continue to improve. While the market is not as nervous about the idea of a rate increase as they were just a few years ago, some investors are wary. Most, however, feel that the United States economy is in a good place; therefore, they feel an increase in rates will not impact the consumer market as much as it would have in the past.
What Does the Increase Mean for Mortgage Rates?
Mortgage rates have been at historic all-time lows, but with the short-term rate increase, mortgages will be affected indirectly. For example, a 30-year fixed rate loan has already jumped to an average of 4.21%, which is up from the 3.68% it was at for a 30-year fixed rate loan in 2016.
For consumers, shopping for a refinance or even a new mortgage will be difficult. This could affect the real estate market because more buyers will be less inclined to shop around for homes or loans.
For now, the average mortgage payment on a $200,000 home could see a $30 increase, which some experts feel is not as big of a deal as companies make it out to be.