The Fed is expected to lift a key benchmark rate by 75 basis points. Here are steps to take if you're considering a major rate-sensitive purchase.
As if wasn’t already tough enough to make a major purchase at a time when living costs are skyrocketing, the interest rates to finance those pricey purchases are going up.
It’s a question that gains urgency with every Federal Reserve meeting about a key interest rate. The central bank is scheduled to announce its latest rate decision Wednesday afternoon.For a home, a prospective buyer would be facing a 5.54% rate on a 30-year fixed mortgage, Freddie Mac FMCC said last week. That’s up from 2.76% a year ago.
The Fed’s rate hikes are supposed to throw cold water on hot inflation rates, on the theory that steeper borrowing costs slow consumer demand. While the Fed presses on with its plans, some people are deciding whether to press on with their big-ticket spending plans. Estimated second quarter new car sales, while up 5.1% from the previous quarter, are down nearly 21% from the year before, according to Edmunds.com.
Think high-yield savings accounts or money market funds, he said. If the deferred timeline skews to three years, Gildehaus said people can “sparingly” consider some small investment in short-term, high-quality corporate bonds via a bond mutual fund. So can new lines of credit for a major purchase in the lead up to a mortgage, Gildehaus said. It may be tempting for some people to consider substituting things like a car purchase or a loan for a home improvement project for financing for furnishings while they hope for better mortgage rates.
Remember that when you resume the search, it will not be same. Interest rates are one variable, and there’s no guarantee for when and how quickly they will go down, Staton said.
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