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# What Does a 1% Rate Increase Do to Your Buying Power?
- URL: https://www.mortgagemomradio.com/what-does-a-1-rate-increase-do-to-your-buying-power/
- Published: 2022-11-02T21:00:00.000Z
- Updated: 2026-09-04T21:32:04.000Z
- Description: Hours after the Fed's fourth straight three-quarter-point hike in November 2022, Debbie explains why the increase was already priced into rate sheets, the rule of thumb for what rising rates cost your budget, and why a home equity line is the wrong fix for credit card debt.
- Author: Deborah Marcoux
- Tags: Podcast, Mortgage Mom Radio, #episode-backfill

Mortgage Mom Radio • “11/2/2022 - Fed hikes rate again, .75%” • Live show from Wednesday, November 2, 2022 • 44 minutes • Hosted by Debbie Marcoux, NMLS #237926

The Federal Reserve raised the Fed funds rate three quarters of a point on the afternoon of November 2, 2022 — the fourth hike of that size in a row — and Debbie went live a couple of hours later. This episode is the practical version of that news: why the hike was already baked into the rates being quoted, the rule of thumb she uses for how much buying power a rate increase costs you, and the homework she gives homeowners who are looking at a home equity line as the way out of credit card debt.

## Key takeaways

- **The hike was already in your rate before it was announced.** Everyone expected three quarters of a point, so lenders had priced it into rate sheets over the preceding weeks. Expect a few days of noise from the announcement itself, then a settle — and then rates climbing again about two to three weeks before the next Fed meeting, as the market starts pricing *that* one in.
- **Debbie's buying power rule: every 1% rise in rates costs you roughly 10% of your purchase power.** Her example on air — a buyer who could have bought at $1,000,000 in late 2021 was looking at a budget closer to $600,000 a year later.
- **Buy on a five-year plan.** Values go up and values come down; five years is long enough that a dip has time to recover, so you are never forced to sell into the bottom. The corollary is her real test: buy a payment you can carry for those five years, not one you can only carry if a refinance rescues you.
- **Do the rent-versus-own homework before you decide.** What are you paying now, what would an equivalent rental cost you today if your landlord ended your lease, and what changes on your tax return if you own? Take the refund difference, divide it by twelve, and that is real monthly money you can add to a housing budget.
- **A home equity line is not a fix for credit card debt you cannot control.** HELOCs are adjustable and move with the Fed, so the payment grows with every hike — and if your value drops, the line can be frozen. Debbie has watched the pay-it-off-and-run-it-back-up cycle for years: put the cards somewhere you cannot reach them rather than closing them, because closing them damages your credit.
- **The refinance that used to solve this mostly does not exist right now.** Moving a $300,000 loan at 4% into a $400,000 loan at 7% raises the payment substantially. If you are sitting on a low rate, taking cash out on top of it is a very different trade than it was a year or two earlier.
- **Consider the ADU math before you borrow for it.** Debbie liked the idea of building a rental unit, but the test is arithmetic: work out what the added loan costs you per month at today's rate, then compare that to the rent the unit would actually bring in.

## Chapters

- 00:50The Fed raised three quarters of a point today
- 01:30Why the hike was already built into current rates
- 03:00Another hike expected at the December meeting
- 05:20Every 1% in rates costs about 10% of buying power
- 06:40There is no wrong answer right now — buy or wait
- 08:30Where Debbie thinks rates go from here
- 10:00Sellers pulling listings, and rents going up
- 11:10The five-year plan, and buying what you can afford
- 12:40Homework: compare your rent to a new rental, and check your tax return
- 21:30Self-employed and 1099? Call before you file two years of returns
- 23:30Q&A: cash-out refinance to build an ADU and pay off cards
- 29:00Why a HELOC can make a credit card problem worse
- 30:30Budgeting, consolidating, and lines of credit getting frozen
- 34:00Reading the Fed's statement out loud
- 36:30What “reducing holdings of mortgage-backed securities” means for your rate
- 40:00Wrap-up and how to catch the next live show

## Questions answered on this show

### “I want to refinance and take cash out to build an ADU and pay off credit cards — and lower my payment. Can I?”

Taking cash out *and* lowering the payment was normal for years. It mostly is not available now, and the reason is arithmetic rather than policy: if your existing mortgage is $300,000 at around 4% and you refinance into $400,000 at around 7%, the payment goes up substantially. That trade only makes sense in specific situations — if the rate you are sitting on is already high, or if the cash coming out retires other debt that costs far more than the mortgage does.

Debbie liked the ADU idea itself, because a rental unit earns money rather than just spending it. But she gave homework rather than an answer: write down what you owe today, your current rate, and your principal-and-interest payment with taxes and insurance stripped out. Add the amount you would need to borrow. Run the new payment at today's rate. Then ask whether the increase is more or less than the rent the ADU would collect. If the added payment is bigger than the rent, this is not the moment for that project.

## Rates mentioned on this show (week of November 2, 2022 — examples, not quotes)

- Fed funds target range after the hike: **3.75–4%**, a three-quarter-point increase
- FHA 30-year purchase rate Debbie was writing that day: **6.875%**
- One buyer locked at **5.875%** — because the seller paid points to buy the rate down
- Typical conventional 30-year fixed for the payment math she walked through: **7–7.25%**

*Your rate depends on FICO score, property type, loan balance, and loan purpose. These are examples she gave on air for context, not a quote.*

### Run your own numbers before you decide

Call [844-935-3634](tel:8449353634) (844-WE-LEND-4), [start an application](https://www.mortgagemomradio.com/apply/), or work through the scenarios with the [mortgage calculators](https://www.mortgagemomradio.com/tools/). Get the weekly rate rundown in the [newsletter](https://www.mortgagemomradio.com/newsletter/).

Full transcript (lightly edited for clarity) 

*Auto-generated captions cleaned for readability. Sponsor messages, commercial breaks, repeated housekeeping, and off-topic asides have been trimmed; licensing information appears at the bottom of this page.*

### The Fed raised rates again today

Welcome to the Mortgage Mom Radio show. I'm Debbie Marcoux, I'm the Mortgage Mom, and I'm very excited to do this show today.

The Federal Reserve did come out and say today, about an hour or two ago, that they raised the Fed rate by another three quarters of a point. So the most important thing to know is what that means for you — if you're out there thinking about buying a home, you've been pre-approved, you haven't found a house yet, you haven't locked in an interest rate.

Number one: everybody knew this was coming. Everybody expected it. We all anticipated the three-quarter-point increase today; it's been talked about for a very long time. So in the interest rates we have been quoting people over the last couple of weeks, we have already seen that increase put into the rates. It's already been built in.

Like with any announcement, we'll see the stock market move, we'll see the bond markets change, and that might spark something short term. Might rates be a little different tomorrow? Sure — there could be some movement up and down purely from the announcement and the excitement. But in reality we've already seen those rates go up and we've already seen them get built in.

One thing to keep in mind: they stated today that when they get back together in six more weeks, at the end of December, they are planning to raise again. So things get a little crazy right now, for the next couple of days — tomorrow, Friday, Monday, Tuesday — then they simmer down. And then about two to three weeks before the next Fed meeting, we're going to see interest rates start to climb again, with the assumption of that next hike being built in.

What should you be doing? If you've been looking for a home, making offers, trying to get yourself into your next transaction — do it as quickly as you can. We've been saying it for the last year and a half: rates are going up. That's not going to change. The sooner you lock in a rate, the better that rate will be. The last thing I heard was that they anticipate the Federal Reserve continuing to increase into March of 2023, then leaving things be, and eventually starting to bring rates down a bit. Nobody has a crystal ball, and the direction they're pointed in can get turned around. But right now we are on the upward escalator. I don't see any major dips coming any time soon.

### Every 1% in rates costs about 10% of your buying power

A lot of people ask whether they should be buying right now or waiting, so here are some facts you need to be aware of — and this is why the interest rate matters so much.

An easy way to think about it: for every one percent that interest rates increase, your buying power decreases by about ten percent. So if this time last year rates were at three and a half percent, and today they're at seven and a half, we have moved four percent. That's forty percent of your purchase power. If in November of 2021 you could have purchased a home for a million dollars, there's a very good chance that today your budget is somewhere around six hundred thousand.

It's a very big swing, and it makes a humongous difference. Somebody buying a home for $600,000 at seven or seven and a half percent has a significantly higher monthly payment than that same home carried a year ago. So if you can, try to get that rate locked in before they go higher.

And everybody keeps telling me, well, what I think I'm going to do is wait. That's okay too. There is no bad decision right now — there is not a single opinion anybody can have that is wrong, because none of us know what's coming. If you asked me how long before rates come down, I'd honestly tell you I think they'll keep raising into the first quarter of 2023\. Then they still need to bring inflation down, so they need to keep rates high for however long that takes. From March, I think we've probably got until the end of that year, maybe twelve months, before we start to see some relaxation. So my opinion: eighteen months or so before rates come back toward more normal levels.

And six percent, five percent — those *are* normal levels. The three percents, the four percents, the two percents had never been heard of before. That was a pandemic. I don't know that we'll necessarily ever get back to that point again. I've been in this business a long time: 2017, 2018, 2019, rates were in the mid fives, touching six, a little higher than six, high fours. Go back to 2005, 2006 and rates were five, five and a half. That's really more of the norm for buying a home. Some people are talking about eight percent. I personally think we could see a nine percent range — and at nine percent it's going to get very, very hard to afford what you want to buy.

### Sellers, rents, and why there is no single right answer

Right now there are a lot of homes going on the market, and a lot of homes coming *off* the market. Sellers are saying: we're listed, we're not selling, I'm not willing to reduce my price, I'll pull it off and rent it instead. And rents are going through the roof at the moment, and they're going to continue to.

You can argue this from any side of the equation and be right on both sides. I could tell you to hold off, don't buy, save your money, stay in your rental — and you could tell me your landlord is increasing your rent, you've outgrown the property, your landlord said they're going to sell, you have to move, and the new rents are even more expensive. There isn't one right answer.

The answer I can give you is this: if you need to buy, if you need a place, it's your time to buy. And if you buy right now, I want you to expect to stay in that home for at least five years. Make it a five-year plan. Even if values drop, they will always come back, and five years is a nice long period for that to happen.

The next most important thing is making sure you're buying something you can afford. It is very, very important that you're budgeting for something you can *continue* to afford. I understand you might not be able to trade what you're renting today for the same thing as an owner — you might not get out of a three-bedroom rental into a three-bedroom purchase at the same monthly payment. You may have to consider something smaller, or another area.

And nobody is wrong. You're not wrong waiting. You're not wrong buying right now. You're not wrong if you're being transferred, if your landlord is telling you to move, if you've outgrown the place, if you're having another baby and you just don't know where the crib is going to go.

### Your homework

So I'll give you all a little homework. First: look at your rent. What are you paying today? Then look at current rents — what would a very similar property cost you if you had to move? If your landlord knocks on the door and says your lease is up, you've got thirty or sixty days, what does it cost you to relocate to a rental of the same size, the same yard, three bedrooms, two bathrooms, two-car garage? That's very important to think about.

Second: what did you owe when you paid your income taxes last year? Did you pay, or did you get money back? What would you be able to write off if you owned a home? The only way to know how your return would change is to call your CPA or whoever prepares your taxes. Then take the difference — say you owed money before and now you'd get five thousand back — divide it by twelve months, and that is how much more per month you would actually be able to put toward a mortgage payment out of your take-home.

Whatever you buy, I want to know you can handle it for at least five years. That doesn't mean you have to stay. You could start in a condo, buy another condo next year, buy a single family home the year after. You can buy as many properties as you want. But you need to know you *could* stay five years, because that way, if values drop, you're not forced into a situation where you're upside down and you lose the property. If you buy a condo you'll only tolerate for a year, I want to make sure we can get you into the next property and keep the condo as a rental. Plan in advance for what could happen.

### Self-employed? Call before you file two years of returns

If you call me today and say you just started driving for Uber three months ago — fantastic, we all have to do what we've got to do. But you're a 1099 earner, and I cannot give you a full-doc income-qualifying mortgage without two years of tax returns. So what are the options? If you have twenty percent down, there are programs where I don't even state your income. But if you haven't started to save and you have no money in the bank, the chances of buying right now are slim.

Here's what happens to the person who never picks up the phone. They do the job, they get the 1099, they write off as much as they possibly can so they don't have to pay the tax man — because somebody told them they needed two years of returns, so they wait the two years. Then they come to me and say they're ready, they've saved their money. I get the tax returns, and they've written everything off, and there's no income for me to use, and there's no way for me to qualify them.

So it is very important that the first thing you do is talk to us. I don't care if you just started the job, I don't care if you've been there a year, I don't care if you have no money. If you want to be a homeowner at some point, get on the schedule and talk to me or one of the team.

### Q&A: cash out to build an ADU and pay off cards

Claudia asks: *“I'm looking into refinancing but I don't know if I should go for it right now. I want to take cash out and lower my monthly payment — we're paying around $3,500 and we're barely making it. Our plan is to use the cash to build an ADU; we have the space on our property.”*

Great question, and one we get very frequently. I could read you a text message I got today from a friend saying she got herself in trouble again, racked up the credit cards, doesn't know what to do. That's happening everywhere.

Many homeowners got into a habit. Rates kept dropping year over year for many years, values kept going up, so they had a lot of equity. We'd refinance, pay all their debt off, get them one monthly payment they could afford — and then they'd use the credit cards again, run them right back to the top, and come back to refinance again. And again. Anyone who's known me over the years has heard me say it: put the credit cards away. Give them to your mom. Put them in a drawer. You can't close them, because that ruins your credit, but put them somewhere you cannot get to them — because there will come a point when you cannot get out of the hole you've created. And here we are.

Claudia, I would love to tell you that you could take money out today and drop your payment at the same time, the way you could have a year or two ago. That is very uncommon now. Maybe your situation is different — maybe your rate is already in the sevens, maybe the money you pull out pays off other debts. But if you don't have debt to retire and your mortgage is from a year or two ago at a lower rate, then taking a $300,000 loan at 4% to a $400,000 loan at 7% means your payment is going up, and going up a lot. For 99% of people with mortgages today, that's really not an option any more.

Now, I love the ADU idea, because with an ADU you can rent it out and make yourself money. But how much money? Here's your homework, and this goes for everybody listening. What do you owe on your house today? What's your rate? What's your monthly payment — and take out the impounds, the taxes, the insurance, and look at just principal and interest. Now, how much more do you need to build the ADU or pay off the debt? Say it's a hundred thousand, so you're going from $300,000 to $400,000\. Run the new principal and interest at today's rate. If you don't know how to run a payment, use the calculators on the app. Then: is that increase more than what you're going to collect in rent on the ADU? If it is, maybe it's not time to do the ADU right now.

### Why an equity line can make a credit card problem worse

We have a lot of people coming to us every day saying they don't know what to do, they owe fifty or sixty thousand in credit cards, and asking whether they should just get an equity line so they don't touch the rate on their first mortgage.

Here's the problem. The equity line is adjustable. It moves every time the Federal Reserve moves the prime rate, so it's going to go up and cost more per month. You already can't afford the minimum credit card payments — so you take an equity line, pay them all off, and then use the cards again. Now you've got the minimum payments back *and* an equity line payment that keeps climbing. That's how people end up in a situation they can't get out of.

So it's really important right now to budget — whether you're buying, whether you own, whether you're building something, whether you need to pay off cards. Groceries are high, gas is high, utilities are expensive, winter's coming. And understand this: they are not done raising rates. Every time they raise, your credit card minimums go up. If you have a line of credit against your home, or a personal line, or a student loan that isn't fixed, your minimum payments go up and you get pinched harder and harder.

One more thing people don't expect: if you have a line of credit and your property value drops, your line of credit can get shut off. I can promise you that — it's what happens every time we go through these cycles. So consolidate as much as you can, cut back where you can, and budget.

If you have a line of credit, you should be thinking about consolidating it into your first mortgage if you can. You might not be able to, if the payment is already more than you can afford. Then you might have to think about selling — and if you do, you look at rents again: what does it cost to get into something similar to where you live now? That might not be the option either. We have to look at the hard truth and figure out the best direction. We can give you the reality of where you're at. It might not be what you want to hear.

### Reading the Fed's statement

I promised I'd read you what the Federal Reserve actually put out, so you can get an idea of what's coming at the next hike and what they're anticipating.

They said recent indicators point to modest growth in spending and production; job gains have been robust in recent months and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. The committee is highly attentive to inflation risks.

The committee seeks maximum employment and inflation at two percent over the long run, and in support of those goals decided to raise the target range for the federal funds rate to three and three quarters to four percent. Note they're giving us a target, not a single number.

The committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to two percent over time. In determining the pace of future increases, the committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities.

A lot of that sounds like a wall of words, but here is the part that matters to you. They are going to continue reducing holdings of Treasury securities — which is what affects our mortgage rates — and agency debt, meaning Fannie Mae and Freddie Mac mortgage-backed securities. They're letting go of a lot of what they had been putting money into, and that in turn is going to push our interest rates up quite a bit.

There's one more line I love: the committee will be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the committee's goals. In other words — if we increase rates too hard and too fast and we tank the economy, we're reserving the right to take all this back.

I also found an article saying the Federal Reserve hiked by three quarters of a point for the fourth time in a row as central bankers keep up their fight against inflation, despite rising concern about the risks of a recession next year. Recession *next* year? We're already in it. And then further down the same article says the Fed has now raised rates six times this year. First it says four times in a row, then six times. Let's get it straight. There are a lot of people writing about this who don't know, and the Federal Reserve doesn't one hundred percent know what it's doing either.

### Wrap-up

They are going to continue to increase rates. You need to look at your budget right now. If you haven't bought a home, make sure you're budgeting for a home you can hold on to. Even though this was kind of a negative show today, I truly do believe real estate is where it's at. If you're renting right now you're throwing your money away — even if the asset drops in value, it will always come back at a later date. But make yourself a plan: how many properties do I want to own, how soon would I need to move, how big is my family going to grow, how long can we sustain where we are, can we add on, how much am I putting down, what is my budget?

And for those of you who are like my very dear friend, who refinanced herself out to oblivion and used those credit cards one last time and now finds herself in a financial mess — we've got to get you out of that. Call us to hear what the options are. They may not be options you like, but let us talk to you about it.

The office number is 844-935-3634 — 844-WE-LEND-4\. If you liked the show, please share it, put it on your social media, tell your friends. I don't have the national radio stations going any longer; I truly couldn't afford to keep that going right now, when things are slow and applications are at their lowest levels in years. So I'm relying on all of you to spread the word. We'd love to help anybody who's ready — and anybody who isn't ready but wants to get ready.

The best way to know when I go live is to text the word MOM to 844-935-3634\. You'll get one text a week to let you know we've gone live, and you just click the link and jump right on. I'll be back next Wednesday at one, right here on YouTube, Facebook, and Twitch. Talk to y'all real soon.

Debbie Marcoux is licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act, NMLS ID #237926, and additionally licensed in AZ (0941504), FL, GA, HI, ID, IL, NV, NC, OR, TN, TX, and WA. Rates and figures discussed were current as of the air date of Wednesday, November 2, 2022, reflect national conforming averages, and are not an offer of credit or a rate quote. Debbie Marcoux is not a financial advisor; consult qualified professionals about your individual situation.