For the third time this year, the Federal Reserve has voted to increase the funds rate. While this may seem like an abstract economic concept, it will affect any of your outstanding debts as well as any plans you have to incur additional debt in the near future. Though rising interest rates are generally a good sign for the United States economy, typically signaling low unemployment rates and increasing GDP growth, it’s important to recognize how it affects you directly as a borrower.

Know Your Payment

The key to surviving an interest rate increase is to know your monthly budget and plan around your spending capabilities. Understanding what you can afford each month can assist you in deciding your next move. If you are able to make extra payments a priority, the “debt avalanche” method is a wise strategy to avoid lasting impacts from higher rates. This type of repayment involves focusing on the debts with the highest interest rates until they are fully repaid, while making minimum payments on your other accounts. By choosing to attend to the high-rate accounts instead of those with the lowest balance, you will see less instant gratification in your accounts but save yourself from paying significant interest charges.

Act Quickly

Mortgage rates can increase or decrease during a rate hike from the Federal Reserve. In a rising rate economy, it’s important to understand the impact of each rate increase. Even a percentage of a point can impact your overall loan significantly. When considering a purchase of a new home or a refinance of your existing loan, acting sooner rather than later can save you tremendously in the long run.

For Fixed-Rate Mortgages

Interest rates for fixed mortgages are not directly affected by the Federal Reserve’s key rate. In addition, your existing fixed-rate cannot be changed based on federal adjustments. Shopping for a new fixed-rate mortgage will likewise not be affected, so it remains a good time to choose this type of loan for added peace of mind.

For Adjustable-Rate Mortgages

If you are nearing the end of your fixed-rate period in your ARM, it could be time to look into a refinance before your payment increases more than you originally anticipated. An adjustable-rate mortgage can experience an immediate impact following a change in the federal funds rate. It is a good time to consider refinancing to a fixed-rate mortgage if you wish to avoid future fluctuations in your rate and payment.

For Home Equity Lines of Credit

As soon as three months after a hike in interest rates, you could see changes in your HELOC. These lines of credit have a variable rate, which is linked to the national prime rate. Since the rate and payment can be raised whether you are in the interest-only stage or paying toward your principal balance, it is best to contact your mortgage lender right away to explore your options. An unexpected larger repayment, which can often be prevented, could have detrimental effects on other aspects of your finances.

The loan officers at Fairway Independent Mortgage Corporation Fort Lauderdale are qualified and ready to answer any questions you have about rising interest rates. Give us a call today!