With the potential challenges posed by increasing interest rates on loans, the present moment is an opportune time to take proactive steps in various financial aspects. It is advisable to consider obtaining a new mortgage or refinancing your existing one in order to secure favorable mortgage rates. By doing so, you can potentially accrue substantial savings throughout the duration of your loan.

Rising Interest Rates In 2024

Federal Reserve Chairman Jerome Powell has successfully implemented his plan to raise the benchmark interest rate, with three rate hikes already implemented. The initial rate increase took place in mid-March 2022, followed closely by the second hike in April of the same year. Subsequently, the third and fourth rate hikes occurred in May and June respectively. Additionally, there are four more projected rate hikes anticipated for the year 2022 alone, as per the current forecast.

Why the Fed hiked interest rates?

Elevated interest rates incentivize individuals to save money as they enhance the interest rate earned on savings. Simultaneously, these rates pose challenges in obtaining loans or accessing credit due to the increased cost of borrowing funds. The Federal Reserve’s decision to raise the federal interest rate is among the measures taken to curb or mitigate inflation.

How does a higher interest rate affect us?

By increasing the cost of borrowing, higher interest rates reduce the overall purchasing power of consumers. Consequently, this reduction in purchasing power leads to a decrease in the demand for goods and services. As the demand dwindles, a ripple effect occurs, causing a decline in costs across various sectors.

What can you do before the next interest rate hike?

Refinance your mortgage

If you are a homeowner, a home loan refinance can be advantageous, particularly if you currently have a variable or adjustable rate mortgage. Such loan types are highly susceptible to fluctuations in interest rates. By transitioning to a fixed-rate mortgage loan, you can potentially mitigate the financial consequences of future rate hikes.

If you have a HELOC (home equity line of credit), opting for a fixed-rate loan can also be a beneficial decision. Similar to a mortgage, converting your HELOC will establish a fixed interest rate for your repayments, regardless of any credit you utilize through your HELOC. This means that you will ultimately pay less on the funds you withdraw,

Refinancing can offer the additional advantage of reducing your monthly mortgage repayments, which can prove invaluable during periods of rising inflation as it provides increased cash flow. Moreover, refinancing presents an opportunity to potentially shorten the term of your loan, enabling you to pay off your mortgage more quickly.

Refinance Student Loans

While federal student loan payments and interest were temporarily suspended during the pandemic, individuals with private student loans were still required to make payments. Refinancing can be a wise decision at this time if you have private student loans. allowing you to capitalize on the current lower interest rates before they potentially rise further. This is especially crucial if your private student loan is not a fixed-rate loan and you do not have a favorable interest rate locked in.

When you choose to refinance your student loans, specialized companies take on the task of paying off your existing debt and establishing a new loan for you. This process often comes with advantageous terms, such as a lower interest rate, especially if you possess a good credit score and maintain a stable income.

If you currently have a federal student loan, it’s important to consider certain factors. Refinancing a federal loan into a private loan may result in the loss of certain consumer protections. Additionally, there is the possibility of future federal student loan forgiveness programs being implemented. If you refinance your federal loan into a private loan, you may not be eligible for such forgiveness programs

Lock-in Your Rate

If you are in the market for a new home, the current period can still be considered favorable for taking out a mortgage. Despite the rise in mortgage rates, it is anticipated that rates will continue to increase further, with four additional hikes scheduled for this year. These higher rates can potentially result in significantly higher costs over the lifespan of your mortgage loan.

A mortgage rate lock provides you with protection against potential rate increases during the loan processing period. This ensures that even if interest rates rise before your loan closes, you will still benefit from the lower rate that was locked in.

Given the current scenario of rising rates and the typical home loan closing period ranging from 30 to 45 days, utilizing a mortgage rate lock becomes an even more valuable feature to capitalize on. By locking in your mortgage rate, you can potentially save significant amounts of money over the life of your loan. Additionally, if any unforeseen delays occur during the loan processing period, some lenders may offer rate lock extensions

Bottomline

One crucial step to consider is taking out a new mortgage or refinancing your existing mortgage to secure low mortgage rates. Doing so can result in substantial long-term savings. Additionally, refinancing private student loans is a prudent choice, particularly with the objective of obtaining lower rates before they potentially increase further in the coming months.

Conducting thorough research and due diligence is crucial before committing to a new loan or refinancing, particularly in a climate of rising interest rates. Investing time and effort into understanding the terms, conditions, and potential costs associated with a loan can lead to substantial long-term savings and increase the likelihood of loan approval.