Interest rates are expected to rise in 2022—here are 4 ways to prepare

With Goldman Sachs predicting that the Federal Reserve will raise its benchmark interest rate by a full percentage point this year, you might be worrying that interest rate hikes could affect your finances.

The federal funds rate, which is set by the central bank, is the overnight interest rate at which banks borrow from one another. It also influences the prime interest rate, which is what lenders use to determine how much interest you’ll pay on credit cards, mortgages and other loans. When the federal funds rate goes up, the prime rate tends to follow.

For now, there are some money moves you can make while the benchmark interest rate is still hovering at around 0.08%. These won’t apply to every person, but here are four to consider.

1. Refinance your home loans

You could find mortgages with around 3% interest for most of 2021, but the Mortgage Bankers Association is predicting that rates will rise to 4% this year, which could make monthly payments on mortgages more expensive. 

For a 30-year mortgage on a $300,000 home, the difference between 3% and 4% would be an additional $147 per month. Considering that the average rate for a 30-year fixed-rate mortgage has climbed to 3.68% this week, up 16 basis points from one week ago, you might want to commit to a lower rate now, before they go even higher.

If you have an adjustable- or variable-rate mortgage that’s already testing the limits of your monthly budget, you might want to refinance to lock in a fixed-rate mortgage to mitigate the uncertainty of rising rates. But make sure you research the pros and cons of refinancing a mortgage before you decide.

Similarly, a home equity line of credit, or HELOC, is closely linked to the Fed’s benchmark rate, so you might want to shop around and convert from a variable rate to a fixed-rate loan if you have one.

2. Refinance your private student loans

3. Pay down your credit card debt

4. Improve your credit score

Source

Leave a Reply

Your email address will not be published.