In case you missed it, the Federal Reserve increased interest rates a quarter point last week, making this its second increase in 2017. This is an indicator of some changes on the horizon, so you may need to adjust your goals and plans accordingly. Here is how the increase could affect you:
Student Loans and Interest Rates
An increase in interest rates is typically an indicator that the central bank believes the U.S. is making good economic progress. But it also means you could see a jump in your rates over the coming months if you have variable interest rates on your student loans.
If you have fixed interest rate loans, you won’t have to worry about this. But with variable interest, a quarter of a percentage point increase can be significant if you’re dealing with a large loan balance.
You have two options to deal with an interest rate hike: Prepare for the higher payments, or switch to a fixed-rate loan. If you’re okay with paying a little extra to retain your variable rates, then just stay on top of when these interest rate hikes occur. There are a few more predicted between now and the end of 2018.
You can also refinance with a new lender to fix your interest rates. First, you’ll need to make sure refinancing is right for you. But if you’re concerned about upcoming rate hikes, this could be the best option for you.
Housing Market and Interest Rates
Housing prices have increased steadily over the past few years. If you’re looking to sell right now, you’re probably going to do pretty well.
At face value, an interest rate increase might seem like a bad thing for the national housing market. What buyer wants to pay more over the life of their mortgage loan?
There are a few upsides: First, if buyers know there are more interest rate hikes scheduled for the next couple years, it might be the push they need to buy. Second, the increase was slight. You might not notice much of a change, especially because rates remain historically low. And third, higher interest rates are added incentive for lenders to make loans. The higher rates add a cushion and help relax the very tight lending standards buyers are running into now.
There are obvious downsides to this, as well. For one thing, buying a home is more expensive. That’s bad news for millennials. That demographic is weighed down with significant student loan debt, but also makes up 40% of first-time homebuyers this year.
Current owners looking to sell may want to delay, especially if they were paying a significantly smaller interest rate on their current property.
Overall, a stronger economy paired with a moderate interest rate hike does not spell disaster for the housing market. Yes, the cost of home ownership will be more expensive. But the low unemployment rate and economic growth indicate that buyers can weather that change.
About Your Richest Life
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