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Tax | Prager Metis | Nov 09, 2015

Rising Interest Rates effecting your Mortgage

Since 2008, the Federal Reserve has kept its interest rate at net-zero, but it looks like that is about to change. America has not seen a spike in interest rates since 2006, but with the jobless rate at 5.1% in September it is safe to assume, financially speaking, that the country is on the rise. But what does raising interest rates actually mean? Higher cost of mortgages, it seems that in December the Federal Reserve will raise interest rates a quarter point.

If you currently have a mortgage or are looking to purchase a home, now is your last chance for the lowest price. Lock down a fixed cost rate, because as the Fed raises the rates you will then benefit from a lower rate.

If you have debt with a floating, rather than fixed, interest rate it is only going to get more pricey for you when the Fed decides to raise the interest rate. Now if you change to a fixed rate your monthly payments you will be receiving some of the lowest fixed-mortgage rates in history!

The following chart from shows the increase that the raise in interest rates is causing from this past September. Now that December is close by, you must act now to save your money.

Date                                              30-year fixed                     15-year fixed                     5-year ARM


September 16th rate:                       4.06%                                    3.25%                                    3.28%


Change from September 9th:       +0.01                                     +0.02                                     +0.04


September payment:                     $793.45                                  $1,159.40                             $720.81


Change September 9th:                 +$0.95                                   +$1.60                                 +$3.62


As stated by Brian Rehling, a St. Louis based co-head of global fixed income strategy at Wells Fargo Investment Institute, “the most important impact of a Fed rate spike will be on loans tied to short-term or floating-rate debt.

As of November 8th, a 30-year fixed rate mortgage with a 10% down payment on a $350,000 home at 4% will cost you $1,503.86/month plus taxes, homeowner’s insurance and PMI (Private Mortgage Insurance). That same 30-year fixed rate mortgage with 10% down at 4.5% will cost you $1,596.06/month. That’s an extra $92.20/month and $33,191.54 over the 30-year life of your mortgage. If rates rise to 5%, the incremental cost will go to $184.40/month and $66,383.08 over 30 years.

Whether you are someone who is looking to purchase home, or currently has a mortgage it is important to stay up to date with the rising rate.


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