What the new hike in rates means for homeowners

Posted: 3/22/2017

The Federal Reserve voted 9-1 last week to increase the key short-term rate by a quarter of a percent. Mortgage rates, credit cards and home equity loans are expected to be impacted. Higher mortgage rates have the potential to lower the demand for home purchases, which can the cause housing values to plateau or drop.

If income from current homeowners who have adjustable rates does not rise proportionately, affordability will become an issue. This will be one of the significant aspects to watch. While the rate hike indicates a promising sign for the growth of the nation’s economy, middle class homeowners who are still underwater may have to make some tougher decision.

Throughout 2015 and 2016, the majority of homeowners saw an increase in their value, which has worried some economists about lower affordability with a new rate increase. Just last week the average interest on a 30-year mortgage was 4.21%, and by the end of 2018 it could go as high as 5.5% according to economist Matthew Pointon from Capital Economics.