LuxManor Real Estate

Interest Rates – September 2015

Fed Did not Move Interest Rates September 2015

Q: What does this mean?

A: The Fed (Federal Reserve Bank) has the power to increase or reduce short term interest rates in an effort to spur what they feel is a slow economy or slow down an overheated economy by making borrowing less expensive and easier. This is typically the overnight rate that banks and other depository institutions lend money to each other. Bank must keep a certain percentage of their customer’s money on reserve.

Q: Where are the rates today? 

A: .25%. They have been at this level since 2007.

Q: Will they likely raise rates in the future?

A: Many sources believe they will but they can’t increase them by much. An increase in rates will increase the government’s annual interest payments so they can’t afford to raise them too much. Hints that a raise is coming have been heard for some time.

Q: If they were to increase, would it be a rapid increase?

A: Most do not foresee a rapid increase.

Q: Does the Fed control long term rates like a mortgage?

A: The Fed has fairly direct control when it comes to short term rates but less control when it comes to long term rates like a 30 year mortgage. It is said that their actions have a domino effect and they’re the first domino in the chain.

Q: What is in store for long term mortgages?

A: Nobody knows for sure but few people predict that rates will stay where they are (near historic lows) for too much longer. A 1% increase in rates will have an impact on monthly payments and thus buying power. Interest rates are just one of many factors in home values.

Q: What if I buy now and rates go DOWN? 

A: We’re getting away from The Fed’s recent decision but the answer is you may be able to refinance, pay off the mortgage and enjoy the lower rate. There are usually closing costs involved (like lender’s title insurance) so the difference between your rate and your new rate will need to be large enough to justify a refinance. Also, you’ll need to qualify and ensure you have enough equity.

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Jim Roy
Jim Roy is the broker of LuxManor Real Estate.