1/4% Rate Increase = Less Than 4 Lattes

There have been a lot of rumblings in the news lately about rate increases…mostly because rates have been increasing :).

Fed Announces Increase In Fed Funds Rate

The Fed recently announced an increase in the Fed Funds rate with more on the way, and rates have been increasing in general in response to positive economic reports, as most everyone knows.

As a result, rates are now back at levels not seen since 2011.

The good news is that rates remain very low by historical standards, as we remind everyone over and over (6% was a “gift” in 2006; 7% was awesome in the 1990s; and 9% was unimaginable in the 1980s).

Rates Affect Monthly Payments Less Than You Think

The other good news? Rates affect payments much less than most people think.

Here is the rule of thumb: for every 1/4% increase in rates, a mortgage payment increases by about $15 per $100,000.

That’s less than four Starbucks Lattes per month.

So, in a “Starbuckian economy,” a 1/4% increase in rates will increase the payment on a $500,000 loan by about 20 Lattes per month.

That’s not too bad, especially when you consider that those lattes may be tax deductible too.