Fed rate increase reaction – higher borrowing costs coming?

Michele Raneri, vice president of US research and consulting at TransUnion, said the greatest impact to borrowers of continued rate hikes would be seen in the mortgage market.

She said: “When interest rates rise, consumers who may otherwise be considering buying a home may instead choose to hold off in hopes that interest rates decline in the not-so-distant future. And in that environment, those who do choose to buy may be more likely to select an adjustable-rate mortgage because their initial monthly payments will be lower than those they would find with a fixed rate mortgage.”

She also gave a sobering example of what homebuyers with good credit could expect to face today compared to the start of the year.

“Right now, the average monthly payment for a $300,000, 30-year fixed rate mortgage at the current 6.0% rate is approximately $1,800. This compares to a roughly $1,300 monthly payment at the 3.2% rate seen in January – about $500 a month higher,” she said.

In response, she urged borrowers to carefully manage their finances. “If consumers haven’t already evaluated their budget after feeling the impact of inflation, they should be starting it now,” she said. “Have an emergency fund at the ready. Three to six months of expenses ideally, but even a few hundred extra dollars can prove valuable if unforeseen circumstances arise.”