Impacts on borrowers as Federal Reserve rate hike looms
FRESNO, Calif. (KFSN) — Federal Reserve Chairman Jerome Powell warned last month that interest rates would be raised aggressively to curb inflation.
An announcement is expected on Wednesday from the Federal Reserve, raising its short-term key rate by three-quarters of a point for the third consecutive time.
“It’s not just the mortgage business either. It’s their credit cards. It’s their lending for their car loans. So all credit is higher now,” said loan officer Paul Salazar. local.
He says rates have already risen in anticipation.
He says that currently on a $400,000 home, an FHA loan for a borrower with a FICO score of 700 and a 3.5% down payment would earn an interest rate of 6.625%.
Salazar says if you were to buy a $400,000 home at this rate, the mortgage payment would be $3,231 per month.
A year ago, that payment would have been $2,476, a difference of $755.
“We’ve been spoiled over the last 10 years because rates are low and that’s a wake-up call for a lot of people,” Salazar said.
He says those who can’t afford to wait for rates to come down will have to bite the bullet.
“Your car breaks down. This is the dream home you want. If they can afford it, then they should,” Salazar said. “Knowing that later they can refinance and get a lower interest rate and then a lower payment.”
Fresno Realtor Don Scordino says higher interest rates mean sellers have to adjust their expectations, from where their home will sell to the number of offers they will receive.
“We’ve all been spoiled over the last two years, where they got more than they asked for, choosing different offers,” he said.
He says that for buyers, it’s more important to be pre-approved. But they can expect less competition on the offers they make.
“The way it was last year just wasn’t normal where you had five or six buyers for every house,” he said. “We’re getting closer to that one-to-one ratio, which is normal and healthy.”
Salazar’s recommendations for borrowers who take out loans at these higher rates: Pay down the debt so that your debt ratio is lower and you can benefit from a higher purchase price or put more money down side.
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