Interest rates are rising. What does that mean for for you as a consumer?
If you’ve ever taken out a loan to buy or refinance a loan or buy a car, you know that you pay interest on the loan. The interest rate is the percentage of the loan that is charged to you, the borrower.
When interest rates rise, the consumer pays more in interest, resulting in less disposable income. A rise in the Federal Reserve’s prime interest rate - what it charges lending institutions - doesn’t necessarily affect all loans, however. According to Bankrate, interest rates on home equity lines of credit go into effect first, followed by student loan and credit card interest rates. Mortgages and auto loans are affected more by interest rates in the bond market, so a mortgage rate may be affected by Treasury Notes.
When interest rates rise, fewer people buy homes or refinance their homes. Those who took out an ARM (adjustable-rate mortgage) when the interest rates were low, will see an increase in their interest rates. It is possible to refinance an ARM to a fixed-rate loan, however, so that while adjustable interest rates rise, yours will remain constant.
Conversely, when interest rates go up and you have an interest-bearing account such as a certificate of deposit at your financial institution, you will be making more in interest.
If sorting out all that information is confusing, consult an investment specialist at your financial institution where you can get answers to your questions. A specialist can help you make wise financial decisions to keep rates lower through options that can include bundling high-interest unsecured debt with lower interest loans, or refinancing your debt.