Charlotte residents will feel the impact of the Federal Reserve’s decision last week to raise interest rates for the first time in four years, but the higher cost of borrowing won’t affect everyone in the city. same way.
Banks will benefit, while home buyers may be worse off. Those with federal student loans shouldn’t worry, while borrowers with adjustable rate mortgages might want to reevaluate if they want to make a switch.
The recent increase could be the first of even bigger hikes in 2022, Fed Chairman Jerome Powell signaled on Monday. The Federal Open Market Committee, which sets the rates, has six more meetings scheduled this year.
Technically, the Fed changes the federal funds rate: it’s the amount that financial institutions charge each other to borrow money overnight. But when he increases this rate, the cost of credit increases for everyone.
Here are several ways the raise could impact Charlotte and your own finances.
It’s time for borrowers to move
If you’re a borrower looking to take out a loan, it’s probably best to act now to lock in a potentially lower rate, said Christopher Marinac, director of research at Janney Montgomery Scott.
Deposit rates, the money you earn by keeping your money in a bank account, will also eventually increase. “Banks are going to be even slower this time to raise (these) rates, in my view,” Marinac said.
Still, rising rates are good news for banks in Charlotte and elsewhere, he said, as banks charge more interest on loans.
“The big picture is that (bank) earnings are going to strengthen,” he said.
Even with other challenges, like a recent spike in oil prices or weakened economic growth forecasts, this rate hike will continue to support earnings throughout the year, Marinac said.
Banks like Wells Fargo, which employs more than 27,000 people locally, could see their revenues increase by up to 19% in the coming year, according to its company’s analysis. And Marinac expects Charlotte-based Bank of America to post another quarter of positive loan growth in early 2022.
It’s a very different picture than two years ago, when both of these companies saw their business slow and banks across the country hoarded cash in loan loss reserves during the pandemic shutdowns.
“I actually think raising interest rates is healthy,” he said. “It’s a different challenge (now), but somehow we have to get interest rates back to a new normal.”
Bad news for Charlotte home buyers
Most mortgages aren’t directly affected by the federal funds rate, said Jonathan Osman of Tryon Realty Partners. But mortgage interest rates have been ticking for weeks, he said, in part because of the anticipation of the Fed hike.
The average rate for a 30-year fixed-rate mortgage has been rising steadily since December, according to data from Freddie Mac.
“The reality is that it hurts the owner occupier, the aspiring owner, unfortunately” in Charlotte, Osman said.
Average homeowners — think individuals or families as opposed to businesses or investors — will likely need to adjust their price to account for the higher cost of home loans, he said.
“It’s a tough place to live,” said “Every time rates go up 1%, that’s the equivalent of buying a 10% more expensive house.”
On the other hand, institutional investors buying multiple properties in the area are unlikely to be as sensitive to changes. “These groups have more money to continue buying regardless of rates,” Osman said.
Charlotte residents can expect the slightly higher cost of home loans to add to an already long list of challenges the average buyer faces in the city’s booming real estate market.
Still, it will take more than a slight rise in mortgage rates to significantly shift the market, Osman said. “There is no silver bullet to fill our supply shortages,” he said.
For those looking to buy homes, Osman said mortgage rates remain relatively low despite recent increases. For the week of March 17, the average 30-year fixed mortgage rate was around 4.2%, still lower than rates in previous decades.
Interest rates and your portfolio
The recent rate hike offers a chance to figure out how more expensive loans might affect you, said Ashley Cumberbatch, Charlotte district manager at US Bank.
“I think now is a good time to sit down and look at your finances…and really understand where you are, what you have, what you might need in the future,” she said. .
The impact of the Fed’s rate hike will be different depending on the type of loan, she said.
Line of credit products, like credit cards or home equity lines of credit, are more likely to get expensive quickly. Other loans, like many personal loans, will not be affected.
Those with variable-rate mortgages could see their housing costs rise, Cumberbatch said, and those borrowers could consider switching to a fixed-rate home loan.
But borrowers with federal student loans need not worry, since these rates are fixed.
It’s a good idea for borrowers of all income levels to assess how rising rates might affect them, Cumberbatch said, but different factors still affect the interest rate you receive.
“While rates fluctuate, one thing to keep in mind is that there is more… that comes into consideration: your personal financial situation, credit score, loan amount and product type,” said she declared.
But Cumberbatch agreed with Marinac that if you’re considering taking out a loan, it might be time to move on.
“If you’re in the market to do some work on your home or buy a new car, now might be the time to make that financial decision,” she said, before the cost of that loan hit. increases.