It’s been roughly a decade since the housing collapse in the United States, and if you haven’t checked as of late the homes and buildings are going up in your neighborhood like a 2007 party. Part of the main reason for the boom over the past decade was the loosening of the monetary policy keeping long term borrowing rates next to nothing.
Those of you who locked in 30-year mortgages between 3% and 4% should thank your lucky stars because we may not see those rates again for another 20 years or more. Now that the United States has hit record low unemployment and corporations across America are making record profits, the Fed is now beginning to tighten the monetary policy. Mortgage rates were between 4.5% and 4.6% for a 30 year mortgage during the week of February 25th, 2018 (source: bankrate.com)
So, what four smart money moves can you make as the Fed tightens up the money supply?
- Cut the ARM off – While most of you have enjoyed super low interest rates with Adjustable Rate Mortgages, now would be a good time to consider locking into a long-term mortgage before rates get too high. If you don’t, you could be stuck with an incredibly high interest rate as most ARM’s will cap at 2% growth per year and potentially 9% to 10% long term dependent on your mortgage. Also, some of you took out a 5/1 or 7/1 mortgage that will convert to an ARM sometime soon. This means you may want to run the numbers to consider what a refinance to a 30 year mortgage looks like now before the mortgage converts to an adjustable.
- What type of credit card do you have? – Many of you that have credit card debt that you are financing need to be careful about the rising rates on your card as interest rates hike up. You may only be paying 10% or 12% on your credit card now, but if the rate is not fixed currently that rate could quickly rise to 18% to 20% increasing your monthly payments. You may want to check to see if you can fix the interest rate on your card or consider paying down the variable rate cards before rates rise two to three times here in 2018.
- The student loans just got worse – For those of you who took out private student loans, you may have chosen a variable rate instead of a fixed rate because at the time interest rates were incredibly low. Now that rates are going up quickly, you might want to look at a website like sofi.com and see if you can lock in a long term interest rate.
- Lines Of Credit – For business owners, times have also been really good. If you took out a commercial loan on your property, remember that interest rates typically reset every ten years. This means, you may want to pay down your loan or consider what the cost of the loan will be when interest rates reset. More importantly, if you have to renew a line of credit, consider that the renewal rates could be substantially higher and the spread you used to have to borrow money and put it in float might not be as good as it was even five years ago.
If you want to set up a time to discuss specific investments that you should own as interest rates go up, please go to oXYGen Financial to set up an appointment.