Federal Reserve pauses rate-hikes for first time in 15 months

The Federal Reserve's decision to hold interest rates steady at the end of its two-day policy meeting may come as a relief to some, but for consumers, it doesn't offer much respite from record-high borrowing costs. The central bank has raised its benchmark borrowing rate 10 times since March 2022, the fastest pace of tightening since the early 1980s.

This tightening of monetary policy has had an impact on consumer borrowing costs, as higher interest rates make it more expensive to borrow money. This affects everything from credit card debt to mortgages and car loans. While a pause in interest rate hikes may provide a temporary reprieve, it doesn't change the fact that borrowing costs remain at historic highs.

For consumers, this means that it's more important than ever to manage their finances carefully and avoid taking on too much debt. It's also important to shop around for the best interest rates and terms when borrowing money, whether it's for a credit card, mortgage, or car loan.

Overall, the Federal Reserve's decision to hold interest rates steady is unlikely to have a significant impact on the borrowing costs facing consumers. With interest rates expected to remain at elevated levels for the foreseeable future, consumers will need to be vigilant about managing their finances and making smart borrowing decisions.

HOME LOANS

The high mortgage rates, which are not only tied to Treasury yields and the economy but also affected by inflation and the Federal Reserve's policy moves, have significantly reduced the purchasing power of anyone looking to buy a new home. Even though 15-year and 30-year mortgage rates are fixed, the high rates mean that borrowers will end up paying more for their homes over the life of their loans.

Although rates have come down slightly from their recent peak, they are still much higher than they were a year ago. According to Freddie Mac, the average rate for a 30-year, fixed-rate mortgage is currently sitting near 6.7%, which is down slightly from October's high but still well above last year's rates.

These high mortgage rates have made it more difficult for homebuyers to afford the homes they want, especially in areas with high housing costs. Some potential buyers are choosing to delay their home purchases in the hope that rates will come down further, while others are looking for alternative financing options, such as adjustable-rate mortgages or interest-only loans.

That said, the high mortgage rates have had a significant impact on the housing market and the broader economy. While the Federal Reserve's decision to hold interest rates steady may provide some relief to borrowers, it's unlikely to have a significant impact on the cost of borrowing for mortgages and other loans. As a result, homebuyers will need to be strategic and patient in their search for affordable homes and favorable financing options.

ARMS, HELOCS

Unlike fixed-rate mortgages, adjustable-rate mortgages (ARMs) and home equity lines of credit (HELOCs) are more closely tied to the Federal Reserve's actions, as they are pegged to the prime rate. ARMs typically have an initial fixed-rate period, after which the rate adjusts annually based on prevailing market conditions. Meanwhile, HELOCs have variable rates that adjust right away.

As the Federal Reserve has raised interest rates in recent years, the prime rate has also increased, leading to higher rates on ARMs and HELOCs. According to Bankrate, the average rate for a HELOC is currently at 8.3%, the highest level in 22 years.

These higher rates can make it challenging for borrowers to manage their debt and may lead to increased financial stress for some homeowners. It's important for borrowers to carefully consider their options and weigh the risks and benefits of different types of loans before making a decision. In some cases, it may be advisable to lock in a fixed-rate mortgage to avoid future rate hikes. In other cases, an adjustable-rate mortgage or HELOC may make sense for borrowers who expect to see their income increase in the future or who plan to pay off their loans quickly.