For prospective homeowners, one of the most critical factors in the buying process is the mortgage interest rate. Unfortunately, those interested in buying a home have endured a challenging year in 2022. Specifically, we are talking about the Federal Reserve interest rate hike.
The Federal Reserve increased its benchmark interest rate for a third time on June 15th. Lenders and banks don’t base their rates solely on the Fed’s actions, but mortgage interest rates tend to rise alongside the Fed’s benchmark.
Who wins and who loses with the Fed interest rate hike?
What does an interest rate increase mean for those shopping for a new home? Is everyone a loser when it comes to higher interest rates? The interest rate change will create winners and losers in the journey to buy a home.
Losers: Home Buyers
There’s no way around it. Buying a home in 2022 costs more than it did in 2021. At the start of 2022, interest rates were at a historically low of 3.25 percent. Fast forward to the middle of the year, and interest rates sit close to or over six percent.
What does this increase mean for a family interested in buying a $500,000 home? The interest rate change means their $2,200 mortgage payment at 3.25 percent is now a $3,000 mortgage payment at six percent. That level of change means future homeowners may need to reevaluate their budget.
Winners: Home Buyers
Yes, home buyers lose when it comes to interest rate hikes and their mortgage costs, but buyers may see some gains, too, when it comes to the money in their bank account. When the Fed raises its rates, banks increase the interest rates of their high-interest checking, savings, and investment accounts.
For families who have thousands saved for their down payment, a higher interest rate on an interest-bearing checking account could help the family save more and faster as they wait for interest rates to cool or for the market to offer better home prices.
With rock-bottom interest rates, the Los Angeles real estate market exploded. However, a report from the Orange County Register indicates that the interest rate hikes had an immediate cooling effect on sales activity throughout the Southland.
The real estate market in Los Angeles remains volatile, and the interest rate changes mean the uncertainty will continue throughout 2022. Consider working with a to Los Angeles mortgage broker from Peak Finance. The best way to buy a home in LA is with the knowledge and prowess of an experienced real estate agent.