As a homeowner, talks of the Federal Reserve raising interest rates can cause uncertainty. If rates go too high it could impact one’s ability to pay their mortgage. The Federal Reserve’s increase in interest rates does not only affect mortgage rates, it also influences student loans, credit cards and car loans. For those living on a limited budget, this could have a major impact.
Homeowners most affected by a Federal Reserve interest rate increase are those with an adjustable rate mortgage or a home equity loan (HELOC). While an adjustable rate mortgage will not be affected until its next scheduled increase, a HELOC rate change can be implemented immediately. Rate increases affect individuals in different ways; depending on current financial situations and future plans to refinance or purchase a new home. A quarter-point increase may not seem like a lot, however factoring this into your monthly or yearly budget may help put things into perspective. Do you have the budget to comfortably incorporate this into your current finances? If this sounds concerning, current interest rates are still low and you may want to consider a fixed rate loan option rather than your adjustable rate mortgage. For those looking to purchase a new car, the impact of interest rate hikes may not be as great.
Why did the Federal Reserve raise the interest rate?
In 2008, the Federal Reserve announced a hold on raising interest rates noting that lower interest rates would help borrowers easily manage their debts. This was intended to be a temporary fix and the interest rates were raised back in 2015. Normally, the Federal Reserve considers raising the interest rates when the economy shows improvement. While some may consider interest rate increases as negative, it can also signify an economic improvement and welcomed by some. The Federal Reserve pursues policies which support Congress’ Federal Reserve Act. Economic recovery, lower unemployment rates and stable prices are all aspects reviewed prior to making their decisions.
In 2017 we’ve already experienced some rate increases, and there is much speculation for another increase before the year ends. With this in mind, now may be the time to switch your adjustable rate mortgage over to a fixed rate loan. You may be saving yourself the worry of how the next rate hike may negatively impact your finances. Adjustable rate mortgages are great for short term homeownership. However, when you are planning to stay in your home long term, a fixed rate will help secure your monthly finances and long-term budgets.
If you would like to purchase a home or convert your adjustable rate mortgage, talk to the lending experts at Lenox/WesLend Financial or call 844-225-3669. As heard on the radio, it’s the biggest no-brainer in the history of mankind.