Tuesday December 29, 2015
The federal funds rate, which has hovered near zero for the past many years, has just seen a slight bump this month. This signifies a step in the Federal Reserve’s long term plan of increasing interest rates on loans. While the increase is only one quarter of a percentage point, analysts are projecting 2016 to be a big year for rate increases, which will greatly impact the housing market.
If you’ve just started to save money, or are entertaining the idea of purchasing a home in the next couple years, here are some facts regarding your current debts effective with these new changes:
Student loans. Firstly, if you have a federal student loan, your interest rates will not rise, as they are fixed rates. However, private student loans will increase within the next billing cycle if you have a variable-rate loan. Good news: the increase to your monthly payment will be small, a $5,000 loan at 5 percent will only cost about $.75 extra.
Credit cards. Interest rates on credit cards will follow the Fed almost immediately, so expect to see a higher interest rate on your card within a couple billing cycles. This is especially timely, as many of us likely broke out our credit cards for holiday shopping, so do your best to pay off balances before the interest rates spike. If you have a large balance on one or more cards , consider looking into zero percent balance transfer offers and move your debt there. These offers tend to last at least 12 months, some as long as 18 months, but likely less common with interest rates rising.
Just be mindful of debt to income ratios. High ratios will harm a mortgage application, causing you to fall into a higher interest rate. Pay at least once monthly to reduce debt while you are not paying interest.
Home loans. If you’re not yet on a fixed-rate loan, now would be the time to switch over, as interest rates increases will be effective immediately in your next payment. If you are in the process of looking for a home, or considering building a new home with Faber Homes, absolutely select a fixed-rate mortgage loan to avoid paying more interest in years to come.