Interest Rates

You have probably heard all over the media lately that interest rates are rising. Please hold back the panic, it will likely be a slow rise, but make sure you are knowledgeable of what this means for you.

Here is what happened: The Federal Reserve made a statement June 19th that “the downside risks to the outlook for the economy and the labor market have diminished.” Although Ben Bernanke said there would be no immediate change in policy, investors are feeling the moment is near and the Fed is likely going to start lessening efforts to help the economy. Interest rates started going up and have been continuing since Bernanke’s statement. We were quoted 4.25%-4.65% for a 30 year conventional mortgage a week after the statement, at least a 0.5% increase in a week.

Here is what it means to you: In the next few years two economic cycles are likely: interest rates will rise and inflation will occur. During this moment in time where interest rates are still low, there is opportunity. It is likely that your purchasing power will diminish greatly in the coming years purely due to interest rates increasing. The impact for your purchasing power is significant, so consider the following scenario to get a better idea of what this means for you.

• Imagine you are purchasing a $500,000 home, putting 20% down and interest rates are 4.5%. Your mortgage will be around $2027/month.

• If you are purchasing the same home, putting 20% down and interest rates have risen to 6.5%, your mortgage is now about $2528/month.