Interest rates are rising. Here’s where you can expect hikes to take hold in Charlotte
People across Charlotte will feel the impact of the Federal Reserve’s move last week to raise interest rates for the first time in four years, but the higher cost of borrowing won’t hit everyone equally.
Banks will benefit, while home buyers could be worse off. Those with federal student loans shouldn’t fret, while borrowers with adjustable rate mortgages might want to reevaluate whether they want to make a change.
The Fed moved the rate from near zero to between 0.25% and 0.5%.
That recent increase could be the first of other, even higher hikes in 2022, Fed Chair Jerome Powell signaled Monday. The Federal Open Market Committee, which determines the rates, has six more meetings planned this year.
Technically, the Fed makes changes to the federal funds rate: that’s how much financial institutions charge each other to borrow money overnight. But when it raises that rate, the cost of credit goes up for everyone.
Here are several ways the increase could have an impact on Charlotte and your own finances.
Time for borrowers to make a move
If you’re a borrower looking to take out a loan, it’s probably best to move now to lock in a potentially lower rate, said Christopher Marinac, director of research at Janney Montgomery Scott.
Deposit rates, the money you earn back for keeping your cash in a bank account, will also rise eventually. “The banks are going to be even slower this time to raise (those) rates, in my opinion,” Marinac said.
Yet rising rates spell good news for banks in Charlotte and elsewhere, he said, as banks charge more interest on loans.
“The big picture is that (bank) earnings are going to get stronger,” he said.
Even with other challenges, like a recent leap in oil prices or weakened economic growth forecasts, that rate hike will still bolster profits throughout the year, Marinac said.
Banks like Wells Fargo, which employs over 27,000 locally, could see top line revenue increase as much as 19% in the coming year, according to his firm’s analysis. And Marinac expects Charlotte-based Bank of America to clock another quarter of positive loan growth in early 2022.
That’s a much different picture than two years ago, when both of those firms saw business slow and banks across the country hoarded cash in loan loss reserves during pandemic shutdowns.
“I actually think the increased interest rates are healthy,” he said. “It’s a different challenge (now), but we kind of have to take interest rates back up to some new normal.”
Bad news for Charlotte home buyers
Most mortgages aren’t directly affected by the federal funds rate, said Jonathan Osman of Tryon Realty Partners. But interest rates for home loans have been ticking up for weeks, he said, in part due to anticipation of the Fed’s increase.
The average rate of a 30-year fixed rate mortgage has been steadily climbing since December, according to data from Freddie Mac.
“The reality is that it unfortunately hurts the owner-occupant, wannabe homeowner” in Charlotte, Osman said.
Average homeowners — think individuals or families as opposed to firms or investors — will likely have to adjust their price point to account for the higher cost of home loans, he said.
“It’s a hard place to be,” said “Every time rates go up 1%, it’s the equivalent of buying a 10% more expensive house.”
On the other hand, institutional investors buying up multiple properties in the area are unlikely to be that sensitive to the changes. “Those groups have got more money to keep buying regardless of what the rates are,” Osman said.
Charlotteans can expect the slightly higher cost of home loans to add to an already long list of challenges the average homebuyer encounters in the city’s hot housing market.
Still, it will take more than an uptick in mortgage rates to significantly shift the market, Osman said. “There’s no magic bullet to fulfill our supply shortages,” he said.
For those looking to buy homes, Osman said that mortgage rates remain relatively low despite recent increases. For the week of March 17th, the average rate of 30-year fixed mortgage was about 4.2%, still lower than rates of previous decades.
Interest rates and your wallet
The recent rate hike provides a chance to figure out how costlier loans could affect you, said Ashley Cumberbatch, Charlotte district manager at U.S. Bank.
“I do think it’s a good time to sit down and look at your finances… and really understand where you are, what you have, what you may need in the future,” she said.
The impact of the Fed’s increasing rate will differ based on the type of loan, she said.
Line of credit products, like credit cards or home equity lines of credit, are more likely to get expensive quickly. Other loans, like many personal loans, won’t be affected.
Those with adjustable rate mortgages could see their housing costs increase, Cumberbatch said, and those borrowers might want to look at transitioning to a fixed rate home loan.
But borrowers with federal student loans needn’t worry, since those rates are fixed.
It’s a good idea for borrowers of all income levels to evaluate how rising rates might affect them, Cumberbatch said, but different factors still affect the interest rate you receive.
“Although the rates are fluctuating, one thing to keep in mind is there’s more… that goes into consideration: your personal financial situation, your credit score, the loan amount, and product type,” she said.
But Cumberbatch agreed with Marinac that if you’re thinking of taking out a loan, it might be time to move forward.
“If you are in the market to do some work on your house or purchase a new car, now may be the time to make that financial decision,” she said, before the cost of that loan rises.
This story was originally published March 23, 2022 at 6:00 AM.
