By Jim Puzzanghera and Andrew Khouri
June 14, 2015
In moving from London at the beginning of the year, Rose-Linn Jensen would have preferred to spend a year getting familiar with the Los Angeles area before buying a home.
But with a Federal Reserve interest rate increase looming, she’s put in bids on four houses and a condo in the Studio City area in hopes of landing a property before mortgage rates rise.
“If I wait, they might go up half a percentage point, and that is going to cost me another $50,000,” said Jensen, 45, of Sherman Oaks, who works in finance in the television industry.
Higher mortgage rates are likely to face consumers once central bank policymakers raise the federal funds rate for the first time since 2006. The rate has been near zero percent since late 2008.
“When the Fed raises short-term interest rates, they’re raising the cost of money, and that impacts the cost of money to consumers, businesses and governments alike,” said Greg McBride, chief financial analyst at Bankrate.com.
Mortgage and other long-term rates already have begun rising in anticipation of a Fed rate increase, which could come as early as Wednesday but is more likely later this year.
“Long-term rates are effectively a series of short-term interest rates,” McBride said. “If the trajectory of interest rates is expected to change in years to come, long-term interest rates are going to reflect that.”
Other factors also affect rates for mortgages, bonds, certificates of deposit and other financial products. But the federal funds rate is a key factor because it normally reflects broader economic trends.
As the Great Recession began, the Fed lowered rates aggressively. The near-zero rate in place for nearly 6-1/2 years has hurt savers and those on fixed incomes. Interest on five-year CDs, for example, have been below 1% since 2012.
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