The answer is they go up and down! (Corny laugh) Wanted to use this weekend word to raise awareness on the rising rates the FEDs have done and what you should be aware of by them. It seems like it was just last year when mortgage rates where around 2.5-3% or even lower, and around 3.25% for home equity loans. We saw a massive surge in home purchases, refinancing and tapping into the equity available in homes. There are a few points we wish to address about the rise in rates, if you took out a home equity line of credit, if you are considering a new mortgage, and/or debt consolidation.
If you took out a Home Equity line of credit (variable rate) last year, the Prime rate was 3.25%. Prime rate is the base number banks work off when doing a loan like this, then credit and income affects that base. Today the Prime rate is 4.75%, so you are asking how the Prime rate affects you. Prime Interest Rates affect you because they form the basis for how lenders determine interest rates for financial products such as personal loans, credit cards, and loans for small and medium sized enterprises. The Prime Rate is the base or reference rate for adjustable-rate mortgages and other variable rate loans. If there is an increase in the Prime Interest Rate, in most cases there will be an increase in the interest rates used for other loans also. This means, if last year you had variable loans, credit cards, or adjustable loans, take another look at the current interest rate on the loan before you use it.
If you are looking for a new home and need to take a mortgage, make sure you shop around to find the lowest rates available and if the financial institution offers discount for relationship. Today a 30-year mortgage rate is around 5.50-6% and a 15-year mortgage around 4.75-5.25%. Add these rising rates with the rising home prices and you are almost paying double monthly what you would have paid last year. Sometimes though it is time to downsize or upsize depending on life events but be cautious when shopping around to get a lower rate. Listed below are suggestions to remember:
- Shop multiple lenders for the lowest quotes because most banks will do a price match to win the deal over (yes this will be multiple credit pulls).
- Banks often offer relationship discounts depending on the amount of money you have held there (lower your rate).
- There are new plans that have lower money down to purchase a home, VA (veteran), FHA (federal housing administration), and LMIT (low to moderate Income Tax).
- Buy in cash and do Home Equity Fixed loan to receive your cash back (reduces closing cost).
Last point is debt consolidation and credit cards. A rise in rates will impact Credit cards rates, so before you apply for a new credit card for a special deal, think about your current rate on the cards you have now.
Reach out to us to review a solid plan before talking to collections, credit lenders and financial institutions; because we can help with structuring a budget and strategy to tackle any outstanding debt you might have.
Sometimes it is best to sit back and wait out the storm before taking on any new loans, but we are always here for you to offer advice and assistance in this process. Feel free to make us your lifeline!