Finance — Expert Article
Why are Rates Rising in 2022? Understanding why mortgage rates go up or down is straight forward; when there are more buyers of mortgage-related securities, rates go down. When there is less demand and more selling than buying, rates go up. The number one reason rates are rising is inflation. When inflation is higher than our Federal Reserve would like to see, the Fed takes action to bring inflation back down. Specifically, the Fed is slowing down its purchases of mortgage-backed securities - reducing the demand - and eventually eliminating its buying altogether. The Fed started its buying spree in response to the COVID-19 pandemic in order to drive long-term rates lower and spur economic investment. What do higher rates in 2022 mean to us as residents of Spanish Fork, Utah? For starters, as you hear the Fed announce later this year that it will raise its overnight funds rate, be ready to see short-term loan rates increase: credit cards, auto loans, and home equity lines of credit, to name a few. Most consumer loan rates are tied directly to these actions of the Fed. If you currently have variable consumer loans at higher rates, have a realistic plan to pay them off before multiple rate increases raise your payments. If paying off these debts within a few years is not realistic given your circum-
10
|
My Community - Spanish Fork
Community Expert: Residential Mortgage Will Whitaker stances, consider replacing the high variable-rate, nondeductible interest debt with low fixed-rate payments. With higher rates, home prices should theoretically begin to cool off. Therein lies arguably our biggest challenge with our local real estate market: there are still a LOT more buyers than there are sellers! Rising rates are only feeding that frenzy as buyers now don’t want to be “left behind” before even larger rate increases. If you have intended within the past few years to refinance your home to either lower your rate and/or your loan term and have been putting it off, you will want to act very quickly to find out if an opportunity still exists. Otherwise, you may be waiting for our next recession for your earliest opportunity to do so. Remember, the Fed is walking a fine line between helping cool inflation and leading our economy towards recession by raising rates. Whenever the Fed has taken this type of action historically to curb inflation, a recession has followed. Will 2022 be the year for a recession? Who knows. As always, the key is not to panic or worry but to ensure you have the right mix of financial products - including loans that will set you up for both short- and long-term financial success.
@mycommunityutah
