Interest rates are a necessary evil in home loans. At the same time, they are a complicated mystery for many homeowners. When the Federal Reserve raises interest rates, the whole country takes notice.
What’s this mean for consumers? Well, if you’re in the market for a home or a car, start preparing to borrow differently, if at all. Tight lending standards and high interest rates will place an all-new importance on selling your house, especially, home cash sales.
What is the Federal Reserve, anyway?
According to their website, the Federal Reserve is the central bank of the United States. Congress created it in order to provide the nation with a more stable, flexible and safer monetary and financial system. The Federal Reserve influences the nation’s money and credit conditions and pursues a stable economy with full employment. The Fed also regulates banks to protect the credit rights of consumers.
What does the Federal Reserve do?
When the economy is doing well, inflation becomes a concern. Traditionally, the Fed fights inflation by raising the federal funds rate, which makes money more expensive. Inflation, as we learned in 2008, is what happens when the cost and availability of money affect how consumers will pay for goods and services. Pretty much, when money is cheap and plentiful, there’s more demand. This leads to rising prices.
In short, the Fed wants to lower longer-term interest rates, support financial conditions, prevent inflation, and improve the economy. To do so, the Federal Reserve conducts monetary policy to achieve maximum employment and stable prices. Large-scale purchases of federal guaranteed or Treasury securities to lower longer-term interest rate have been an effort to improve financial conditions and support economic recovery.
Why does the Fed rate increase matter to me?
Broadly speaking, a rise in interest rates increases borrowing costs throughout the economy and affects anything that has interest attached to it. While it may cost more for consumers to borrow money for homes, there are some positive effects that, though not immediate, will be part of the economic ripple effect.
Fed interest rates matter in that they majorly affect the operations of the U.S. economy. Interest rates influence borrowing costs. For example, when the Fed sets interest rates low, more people are able to obtain a mortgage or take out an auto-loan. Businesses also feel the effects of such rates and could be in a position to expand, update, or hire more employees.
On the opposite end of the spectrum, higher interest rates result in just what you’d expect. When the Fed hikes the interest rate, consumers and businesses are restrained and not able to borrow as much money. A limitation on how much credit banks may lend buyers, higher rates, and an increased buyer pool, could lead to lower home values since the overall price of buying a home goes up with mortgage rates.
There’s no rate increase here. We pay all cash!
You want to sell your home, and you want to sell it the easiest way possible. The simplicity of selling your home for cash is you don’t have to worry about interest rates on mortgage lines or tight lending regulations.
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