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How will the Fed rate increases impact you?

It has been reported in the last few weeks that the Federal Reserve is planning to increase their rates two or three times in 2017. The impact for you might not be exactly what you think it will be regardless of whether you have a variable rate loan or not.
What is the most immediate impact of the Fed raising rates?
The most immediate impact is that prime rate, the rate that financial institutions charge their very best customers, will increase. Depending on the economic situation, the stock market might also be impacted. Rarely will rates that impact consumers increase immediately.
What types of debts are most impacted by a Fed increase?
Variable rate debts which can include credit cards, signature loans, home equity line of credit loans and adjustable rate mortgages or ARM loans are most likely to see an increase in rate when the Fed increases rates. On existing loans, the increase could be 30 to 60 days or even longer depending upon the terms of the loan. Consumers will be given notice with ample time to make any adjustments if they deem it necessary.
Should consumers avoid variable rate loans at this time?
Not necessarily. Variable rate loans will continue to be lower than fixed loan rates and depending upon the terms of the loan, your variable rate loan might still be the best option for your lending needs. For example, if you have a 10/1 ARM on a new home, you might be planning to move before your rate even adjusts.  The lower payment from the lower interest rate might be perfect for your situation.
What impact does a Fed increase have on mortgage rates?
For existing loans, those that are variable, it will mean a rate increase as some point. For new loans, mortgage rates are not often impacted by the prime rate, but more by what the impact of a Fed increase does to short and long term treasury rates. There have even been times in the past when a Fed increase actually caused mortgage rates to fall.
If you have an adjustable rate mortgage should you be concerned?
It really depends upon your situation and the loan documents. If you have a seven year ARM and you are just 1 year into it, you will have 6 more years before the rate can increase.  Most ARMs are also limited by how much and how often they can increase each year. It doesn’t have to be panic mode if you have an ARM.
What are your options if you are concerned about variable rate loans?
For mortgage loans or home equity loans, there is always the option to refinance the loans to a fixed loan. If you have a balance on a credit card, you have the option to look for a fixed rate credit card or consolidate the balance to a fixed rate signature loan. Just be sure to look at all your options and your financial situation before deciding on a course of action.

Posted: 1/19/2017 with 0 comments

Categories: Financial, Money Matters, Relationships

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