Real Estate

Fed Increases Rates Now & Releases Plans For 2016 – How It Affects You

There’s going to be a lot of news hitting today (and probably over the coming weeks constantly) about the Fed’s rate increase announcement that is occurring at 2pm EST today.

There’s no need as a renter or home buyer to panic today,” said Gerard DiRuggiero, Principal Broker of UrbanLand Company. “The Fed is raising their prime rate to 0.25% today in its first increase in 7 years due to an improved US economy. This will have a spillover effect into things like savings account interest rates, mortgage interest rates and credit card rates.”

We’ve been discussing interest rates in the ULC Blog all year and aren’t going into too much detail on why rates are raising.  Here’s some background for anyone who wants detail (Interest Rates Fall News). Make sure you understand that the prime interest rate is a different number than the interest rates at your bank, credit card and (future) mortgage lender. The raise in prime rate has the following basic effects:

  • Adjustable rate mortgages usually adjust once per year. If the Fed raises rates quarterly several times before your next loan adjustment, then you may see a pent-up substantial increase in your home payment.
  • Increases in rates on fixed rate mortgages (30 year) will occur in gradual increments.

Your mortgage interest rate directly affects the monthly payment you pay when you own your house. Unlike your rent if you live in DC, your fixed rate mortgage monthly payment does not change (will not go up or down) during the life of your mortgage, unless you refinance.  Once you get that mortgage, you’re on a controlled budget with no real surprises.

An increase in fixed rate mortgage interest rates means less buying power due to higher monthly mortgage payments. Here’s a brief view on what happens to affordability for buyers as rates increase. Down payment amounts are removed to keep things simple.

  • Right now, a 30-year fixed rate mortgage on a $300,000 home at the current mortgage rate of 3.925% will cost you just $1,419.30/month plus taxes, homeowner’s insurance and PMI (Private Mortgage Insurance).
  • That very same 30-year fixed rate mortgage on that $300,000 house at a higher rate of 5% will cost you $1,610.46/month in mortgage before taxes, insurance and PMI.

The only way to get your monthly payment back to the very reasonable $1,419.30/month is to cut the amount you spend on the home. The $300,000 home or condo that you were in love with? With rates at 5%, you need to look at homes priced at $267,000 to achieve the same $1,419.30/mo. payment.

Here’s the good news. The Fed’s raise in rates will not affect fixed rate mortgages much today. “Our prediction on mortgages matches what a lot of experts say. Rate increases are going to be gradual. Expect rates to increase about 0.25% per quarter and expect a spillover effect into mortgage rates. If you’re a renter and want to stop renting, now’s a great time to start the home or condo buying process,” said Gerard.

Again, don’t panic. The rate increase is not the end of world. “The best way to approach this news is to get educated on becoming a homeowner quickly,” said DiRuggiero. “That’s what we are here for. We run free Home Buyer Workshops that are very accessible to those who want to learn the fast path to ownership. Plus, we’re expert in local $0 down and other low down payment options.”


Our schedule of available $0 Down Workshop for the remainder of December is available here. In January, we’ll be available Tuesday nights at 5:30pm and Saturday mornings at 10am. Office location for the Workshops is 913 Florida Ave. NW. Email us to RSVP for a session or call 202.299.9223.

Here’s some of the homes and condos our Workshop Attendees have successfully purchased this year!


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