May 12, 2017
The Fed has been a bit more active as of late as it relates
to monetary policy and adjusting interest rates. The Federal Open Market
Committee, or FOMC, meets every six weeks or so to discuss the current economic
policy and the cost of funds. So far this year we’ve seen one interest rate
increase of 0.25% in addition to the move made at the end of last year. The Fed
has also commented we can expect to see at least two more rate increases in
2017. Here are a few tips handling your finances in light of rate moves.
1. Don’t Panic. When the Fed raises rates
it essentially raises the rate banks can charge one another for short term,
overnight loans. Those rate increases cause the banks cost of funds to rise
which will ultimately be passed on to credit cards, auto loans and other
accounts. Yet the amounts are incremental and you’ll barely see a difference.
2.Pay Them Down. To avoid slightly higher
payments in the future, start paying down your debt which will more than offset
any future rate moves. Don’t just make the minimum payment, make a little
3. Highest to Lowest. When paying down
debt, start with the account carrying the highest interest rate, not the
lowest. Credit cards typically carry higher rates than other credit accounts.
4. Don’t Take On More. Don’t open up any
new credit accounts if your budget doesn’t appear to handle it. If your budget
is tight now, slightly higher rates later will only make it tighter.
5. Refinance? If you’ve got a variable
rate mortgage now or a hybrid loan, it’s probably in your “best interest” to
refinance now rather than later. Interest rates anticipate Fed action and
doesn’t react to it. Mortgage lenders are rarely surprised at Fed moves.
In short, it’s probably best to step back and look at what
the Fed actually does when it raises or lowers the Federal Funds rate. It makes
for a lot of good press when the FOMC meets but rarely does any increase have a
significant effect on credit markets. But overall, keep these tips in mind so
when the Fed does make a move, you’re already prepared.
For more information or questions about mortgage loans, please call (855) 757-8748.