Where A Rate Hike Hurts Most
- LendingTree (NASDAQ: TREE) founder Doug Lebda says that certain borrowers will be hit harder than others by the first Fed rate hike.
- Mortgage rates will likely not be impacted as much as other adjustable-rate loans.
- The average mortgage payment would only rise by $30 per month following a 0.25 percent rate hike.
According to LendingTree founder Doug Lebda, not all borrowers are created equal when it comes to the impact of a potential Federal Reserve interest rate hike. Earlier this week, Leba discussed which borrowers would be hit hardest if the FOMC decides to pull the trigger on a rate hike.
Consumers that hold or are in the market for adjustable-rate auto or personal loans, as well as consumers with adjustable-rate student loans and credit cards will be hit by the first interest rate hike. Of course, anyone who has locked in historically low fixed interest rates on loans over the past several years will be immune to the Fed tightening cycle.
Mortgage Rates More Immune
Adjustable-rate mortgages could end up seeing less impact from a rate hike than other types of loans. Morgages are historically pegged to the 10-year Treasury bill. Since global investors typically consider Treasuries to be one of the lowest-risk sources of income, high demand for Treasuries can keep yields down.
Recent global fears about China’s economic weakness could continue to contribute to demand for Treasuries.
How Much Of An Impact Will Rate Hike Make?
While the potential impact of a rate hike on U.S. equity markets remains unknown, Lebda assures debt-holders that the widely-expected 0.25 percent first hike, whenever it comes, will not have a major impact on payments.
“It means about $30 a month on the average mortgage payment,” Lebta explained.
He added that about 60 percent of borrowers accept the first loan offer they receive when they could easily save 0.25-0.50 percent by shopping around.
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