Today has been quite the day. We have learned that the Federal Reserve increased the interest rate by a quarter of a point. Sure, it is a small rate hike, but not something we should just pretend never happened. The last spike was in 2006, about a decade ago. From this point on we should expect to see many hikes which will in turn pump up the rates for all sorts of loans. We have put together a few areas which will be affected with this increase.
We’ve all got ’em and we all want ’em. We will see this very fast with credit cards. Note that these rates can and will adjust on their own and are not subject to the typical 45 day notice that you would normally receive from the credit card company. This does not mean that if you signed on for a low rate offer for the first year that this will be erased. It simply means that once that promo offer ends, you will see higher rates. In addition, we will most likely see less of the attractive and initial low interest offers. Although for the next year and a half you might want to take advantage of some of the low and zero interest offers to pay off any debt. After that, everything will rise.
Typically mortgages follow a 10 year Treasury, but just like the credit cards, you will see a steady climb in the short-term rates. This in time will head on up to home loans. If you have an adjustable mortgage, you might want to consider refinancing. If you can refinance with low to mid rates then you should be able to have a fixed rate for about five to seven years. Now if you are financing a 30-year mortgage then you will see a larger spike to about 4 percent. Times are tough but keep in mind that even if you expect to stay in the house forever, your monthly payments will be much higher.
Do you have a balance for a line of credit on home equity? If so, you might want to consider options available to you. These types of loans will hop on board to the higher interest rates. Obviously some people do not have the high credit scores and income to be able to roll the debt into a mortgage but it is most definitely something to keep a close watch on and be well versed on all options possible.
The good news (yes there is SOME good news) is that car loans should remain low for a good while. There is just so much competition in the automobile industry. Leaders in the auto industry will keep new car rates low and still make a profit from all of their sales. This will help to keep the finance rates lower. This does not mean they will stay low forever. In time they will be forced to increase rates due to cost of funds. As for used car sales, they will most likely rise sooner.
Photo by rentalrealities As we move into the future, so does inflation. Sometimes I wish we could just pump the breaks a little in the financial world. As if loans and debts don’t stink enough. Sending good vibes to everyone out there and wishing you all lower interest rates.