Fed Raises Interest Rates: How Does it Affect You?

Fed Raises Interest Rates: How Does it Affect You?

June 21, 2017

With the Federal Reserve raising their interest rate by .25%, that may leave you wondering what it means for your finances - and more specifically your mortgage’s interest rate. 

While some may argue that the rise in benchmark rates is normal and will soon make a rebound back to “normal” rates, taking the necessary precautions regarding your own mortgage rate is essential. 

Fed’s Increase in Mortgage Rates 

With the Fed rates increasing and due to increase again by the end of the year, your mortgage rate may very well increase by an entire point by the end of the year. Now is the best time to investigate options to refinance your loan before the rate increases again. 

The Fed is not only raising interest rates, though. Since the financial crisis, the Fed has purchased around $1.3 trillion in mortgage-backed securities, and now plans to create a schedule to sell a portion of these securities over a period of time. This could mean an additional increase on homeowners’ interest rates.


Fed’s Increase in Rate Affecting Your Income 

Keep an eye out for your other finances as well, including the Fed rate increase affecting your income. With the interest rate rising, due to an end goal being to stimulate the economy, inflation in goods and services may occur. The drawback is even though this may be great in the future, the increase in goods and services without an increase in pay may create unbalanced income-to-debt ratio for a period of time. 

What Can You Do to Prepare?

  • Talk to a mortgage advisor about refinancing your home loan before the rate increases again at the end of the year

  • Monitor the goods and services you use regularly to see if an increase in costs occur.

  • Take a look at your other bills and finances and see if there are opportunities to save money through refinancing other loans, or pay a lump sum on the principal of a loan to reduce monthly payments

Finances can be stressful when change occurs, but relax! As long as you stay informed and take the necessary precautions to avoid financial struggle, you are sure to enjoy the upcoming months with ease.