Impacts to borrowers as Federal Reserve rate hike looms

Alyssa Flores Image
Tuesday, September 20, 2022
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Federal Reserve Chair Jerome Powell warned last month that interest rates would be aggressively raised to curb inflation.

FRESNO, Calif. (KFSN) -- Federal Reserve Chair Jerome Powell warned last month that interest rates would be aggressively raised to curb inflation.

An announcement is anticipated Wednesday from the Federal Reserve, raising its key short-term rate by three-quarters of a point for the third consecutive time.

"That's not just the mortgage industry either. That's their credit cards. That's their loans for their auto loans. So everything across the board on credit is higher now," said local loan officer Paul Salazar.

He says rates have already risen in anticipation.

He says currently on a $400,000 home, an FHA loan for a borrower with a 700 FICO score and 3.5% down payment would get an interest rate at 6.625%.

Salazar says if you were to purchase a $400,000 dollar home under that rate, the mortgage payment would be $3231 per month.

A year ago, that payment would have been $2476 -- a difference of $755.

"We have been spoiled in the last 10 years because of the fact that the rates are low and this is a wake-up call for a lot of people," said Salazar.

He says those who cannot afford to wait for rates to drop will have to bite the bullet.

"Your car breaks down. This is the dream house that you want. If they can afford it, then they should do it," said Salazar. "Knowing that down the road, they can refinance and get a lower interest rate and then a lower payment."

Fresno Realtor Don Scordino says higher interest rates mean sellers have to adjust expectations, from the selling point of their home to the number of offers they'll receive.

"We all got spoiled the last year or two where they were getting more than they were asking for, getting to choose different offers," he said.

He says for buyers, it's more important to get pre-approved. But they can expect less competition on the offers they make.

"The way it was last year was just not normal where you had five or six buyers for every home," he said. "We are getting closer to that one-for-one ratio, which is normal and healthy."

Salazar's recommendations for borrowers taking out loans under these higher rates: pay down debt so your debt ratio is lower and you can qualify for a higher purchase price, or put more money down.