Mortgage rates are on the rise.  The Fed’s raised rates for the second time this year and promised another two rate hikes before the end of 2018.   Unemployment is down to 3.6% which is historically low.  All economic indicators are pointing in a positive direction at this time.  So how does this rate hike affect your personal economic forecast?

Credit Cards:  For starters credit card rates are already at a record high of 17 percent on average according to Bankrate.  Most credit cards have a variable rate, which means there’s a direct connection to the Fed’s benchmark rate, and as interest rates rise, the interest rate on your credit card will go up.   How can you fight this?  Try to pay off your credit card debt first if possible.  Look for zero interest credit cards and see if they will honor that for balance transfers.  Move your debt to those cards that have a lower interest rate.

Mortgages:  People assume the Fed interest rate is treated the same way as credit card debt and that is not correct.  There is some influence over long-term fixed mortgage rates, but mortgage rates are generally pegged to yields on US Treasure notes.  However this does not apply to a HELOC loan.

HELOC:  A HELOC is an acronym for Home Equity Line Of Credit.  The rates for a HELOC are generally not set and that means they will adjust.  These loans follow the prime rate so when that goes up, you will see an increase payment.  If you have a HELOC at this time, ask your lender to freeze the interest rate on your outstanding balance or consider refinancing into a fixed-rate home equity loan.

Let’s look at the bright side!  Even though we are heading into a more expensive interest rate cycle, we are still way below what I was paying in the early 2000’s for my home loan – it was 6.5%!

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