How the Fed’s December decision could affect you

On December 16, 2008, the U.S. Federal Reserve announced that interest rates would be kept below one-quarter percent until further notice. The announcement came in response to one of the worst financial crises Americans have seen. Lowering interest rates would help borrowers stay in better control of their debt and encourage others to buy, the Fed explained. However, it could increase mortgage rates for many American homeowners and those looking to buy a house in the near future.

At the time, many were being laid off and their homes were being foreclosed. The low interest rates that have lasted seven years were meant to be a temporary fix, kept in place long enough to help American citizens and businesses recover from the recession. For several years, the Fed has said that, eventually, the key funds rate would be adjusted, meaning consumer interest rates would then increase.

The current economy
Today, homeowners seem to be doing much better than they were in 2007 and 2008. Statistic Brain reported just over 1 million homes filed for foreclosure in 2014, compared to the more than 3 million in 2008, and nearly 4 million in 2011. The most recent jobs report from the Bureau of Labor Statistics showed that over the past two years, unemployment has fallen from more than 7 percent to 5 percent in October 2015. The number of people working part time because they couldn’t find full-time work or their hours had been reduced went down by 269,000. Statistics like these show the U.S. economy is doing much better than it was several years ago, leading the Fed to believe it’s time to lift its accommodative policy.

Some predict the announcement will come on December 16, after the Fed completes its eighth Federal Open Market Committee meeting of the year, the New York Times reported. If not in this meeting, then possibly in January, after its first committee meeting of 2016.

How interest rates affect you
As many attempt to predict when and by how much the Fed will raise interest rates, many others worry about how it might affect them. According to USA Today, a raise could actually benefit many people. For instance, an upcoming rise in rates could encourage people to buy a home before the increase affects mortgage rates. This gives home sellers an advantage, as there may be more buyers on the market looking for a home. Homebuyers would benefit by looking for mortgages before the end of the year to make sure they can avail on the lowest interest rates possible.

On the other hand, homeowners paying off a mortgage might see an increase on their mortgage payment after the rise takes effect. Homeowners with adjustable-rate mortgages may want to act and refinance for a fixed-rate mortgage to lock in their interest at one of the lowest rates in history. Homeowners can do this is by contacting Lenox/WesLend Financial to talk to a mortgage advisor about how they can take advantage of current low rates.

People with money in a savings account could benefit as well, according to CNN. Higher interest rates might mean your bank will raise the interest you make on the money you have saved. However, Bloomberg predicted that many large banks may not opt to do this, as they don’t have much trouble bringing in money. Smaller banks, though, have more of an incentive to attract savers’ money because they are competing with these bigger banks. Because of this, community banks might raise the rates on savings accounts faster than bigger institutions.

Rates will likely remain low
If you choose not to refinance your mortgage or purchase a new home before the increase hits, according to Charles Evans, Federal Reserve Bank of Chicago’s president and CEO; the Fed will most likely raise the interest rates slowly. For instance, the first increase is likely to still remain under 1 percent, according to the Lansing State Journal. The Fed would want to observe how the economy adjusts to a slight increase before continuing to adjust it further.

An interest rate of even 1 percent, though higher than it’s been in nearly a decade, is still low, compared to historic rates. According to the Federal Reserve Bank of St. Louis, just before the recession, interest rates were more than 5 percent. In the early ’80s, they even reached highs of nearly 20 percent. Regardless of the Fed’s upcoming decision, American homeowners and prospective buyers should know interest rates will likely remain at historic levels for at least the next year.

Lenox/WesLend Financial has been providing mortgage solutions since 1999. Take advantage of today’s lowest rates by contacting us or call 844-225-3669. As heard on the radio, it’s the biggest no-brainer in the history of mankind.

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