The Federal Reserve raised interest rates ¼ percent on Wednesday, and indicated they were going to raise rates three times in 2017. Since the election, rates on a typical 30-year mortgage have increased by about three quarters of a percent to 4.38%
The increase in rates will ultimately impact those who have already borrowed using an adjustable rate Home Equity Line of Credit (HELOC) or an Adjustable Rate Mortgage (ARM) because the interest on these loans go up at the rates rise. Unfortunately, more and more lenders are now starting to aggressively market these adjustable loans. Please don’t get trapped into one of these!
This is the reason that we have consistently encouraged people to only get fixed rate loans if you have to borrow. When you have an adjustable rate loan, your interest rates are free to float higher and this can be very expensive and even risky.
Also, when rates go up, the value of bonds go down, and the longer the maturity of the bond the more it declines on value. In fact, investors worldwide have already lost trillions of dollars of value with the current increases in rates.
But there is also good news . . . for savers! The higher rates will translate into higher interest earned on your savings. For this I am very grateful, especially for seniors who were faithful to save, but have been earning next to nothing for almost eight years.