Debbie Siegel's Mortgage Minute
Changes in Interest Rates Affect Your Bottom Line
Most people hear that "The Fed" might be raising interest rates and aren't sure how a rate hike will affect them. Rate hike rumors can be confusing because the general population isn't aware that the U.S. economy has different interest rates that fluctuate daily.
When talking about raising interest rates, the Federal Reserve is speaking specifically about the Fed Fund Rate - the interest rate at which the depository institutions lend balances at the Federal Reserve to other depository intuitions overnight.
The Federal Open Market committee meets eight times a year. The last meeting was held on September 18th; the next meeting is scheduled for October 30th.
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If you have a fixed interest rate mortgage then these meetings might be of interest to you but they won't affect your payment, rate, or term of your existing loan. If you have an adjustable rate loan or a home equity line of credit, then these meetings are important to your bottom line. The rate change could affect your existing interest rate, therefore increasing or decreasing your current payment.
As you know, we're experiencing a tumultuous market, so it's important to understand what your mortgage options are and how those options function. When choosing a mortgage program, ask your lender the following questions:
- Does the rate stay fixed or does it adjust?
- What is the term of the note?
- On what index is the rate based?
- Does the payment consist of Principle and Interest?
- Can I pay my loan off early without penalty?
The reason many people can't pay their mortgages or have fallen behind is simply because they didn't understand their mortgage program, including the fact that future rate increases could create higher payments down the road. The sad outcome is that due to this lack of knowledge, they weren't expecting the larger payment, and now they can't afford to make their payments.
As with everything related to real estate, it pays to ask questions. If you're not sure about any aspect of a potential mortgage program, or your lender is not answering your questions, get a second opinion - or another lender! Be sure you know exactly how your loan will work today, tomorrow, and ten years from now.
Got questions about real estate financing? Contact
Debbie@westchester-mortgage.com
or 617-965-1236. She'll consider them for
inclusion in a future column. Debbie Siegel is president of Westchester
Mortgage in Newton, Mass. She is licensed in several Northeastern states.
