Market-watchers were taken somewhat by surprise after rates were increased by 0.75% at the June Federal Open Market Committee meeting. Although a rate increase in and of itself was not entirely unexpected, the amount of the increase certainly carried some sticker shock. Cambridge Realty Capital Vice President Zachary Scardina noted that it was the largest single rate increase since 1994, dating back to the time when Alan Greenspan chaired the Fed. “We weren’t necessarily expecting such a substantial hike at this particular time,” Scardina commented, highlighting the urgency for borrowers to lock in interest rates in order to mitigate any further cost increases.
The federal funds rate target at the start of 2022 was 0% – 0.25%. Rates have dropped in the last couple of years, in part as an effort to remedy the slump caused by the COVID-19 pandemic, so an eventual rate increase was inevitable. However, Scardina pointed out that the April FOMC meeting resulted in just a 0.25% increase, while May saw rates increase by another 0.50%. “To then have a rate increase of 0.75% in June, by comparison, was startling,” Scardina recounted.
“The Fed has definitively turned up the dial on raising interest rates, with a trajectory that continues to point upward” he added. “Now is the time to lock in interest rates to avoid certain increases, as well as any unexpected surprises that might catch borrowers off guard.” As it stands today, the federal funds rate target is predicted to increase above the 3 percent mark by the end of 2022, doubling from the current target of 1.50 – 1.75%. “Waiting to lock in interest rates could end up costing borrowers significantly,” warned Scardina.
He urges borrowers to look at their loans and see whether it makes financial sense to lock in before the end of the year, preferably sooner rather than later. “Better yet, give us a call and let our experts help you understand what is available in terms of loan products. Sometimes it’s worth paying a penalty to break an existing agreement because locking in saves enough money in the long term to outweigh the price of the penalty fee.”
Throughout the pandemic, Cambridge Realty Capital has been aggressive and proactive in re-examining its lenders’ policies, searching for ways to save its borrowers’ money in light of lowered interest rates. In many cases, Cambridge reached out to its borrowers to advise them to sign new agreements when the savings outweighed the cost. “In many cases, the borrowers had no idea that this was even possible and that they qualified for lower rates at minimal cost,” Scardina noted.
Now that rising rates are a foregone conclusion, mitigating long-term costs and staying ahead of the trajectory is the name of the game. “Cambridge has numerous loan products and many ways in which to tailor deals to the individual borrower’s needs,” Scardina stated, reminding borrowers that “Cambridge is always available to answer questions and explore opportunities.”