Federal Rate Hike: What Does it Mean for You?
The Federal Reserve announced the second interest rate hike to the federal funds rate this year. What does this mean for members? We’ll address three frequently asked questions, and provide some possible solutions for you.
1. Why are rates being raised?
There are several reasons, but rates can fall and rise depending on a variety of economic factors, including:
- The job market
- Home prices
- Commodity prices
- Exchange rate
In this most recent hike, Federal Reserve Chairman Jerome Powell expressed optimism about the state of the economy. This is likely going to translate into higher borrowing costs for mortgages, cars and credit cards over the rest of the year. Additionally, the strong economy signals the possibility of more to come by the end of 2018. But, fear not – even if rates continue to increase, we're committed to keeping our rates competitively low to help our members stay financially healthy.
2. How high is the interest rate hike?
The federal funds rate has been raised to a range of 1.75 to 2 percent. People with adjustable-rate products will likely end up paying a higher rate, regardless of which financial institution they're using.
3. What types of loans are going to be affected?
Consumer loan products at commercial banks, credit unions and all other banking institutions are going to be affected. Popular loan choices at BECU that will be affected include:
- Adjustable-rate mortgages (ARM)
- Home equity line of credit (HELOC)
- Auto loans
- Credit cards
This may seem alarming, but the truth is rate changes are fairly common and are an inherent part of the economy. From a consumer's standpoint, use the increases as a way to take stock of what you can afford right now, knowing that payments may increase on any adjustable-rate loan if rates continue to rise. You may want to consider the various loans and rate types before making a big purchase, such as a home or car.
Here are a few strategies you can use to offset the cost of rising interest rates:
Switch to a fixed-rate loan product
If you're currently in an adjustable-rate mortgage or home equity line of credit, you may opt to refinance to a fixed-rate mortgage and lock in a rate while they're still low. Even by refinancing at an APR just a half-percent below what you're currently paying can save you hundreds, if not thousands of dollars per year. See what you could save by using our mortgage calculator.
Consider an adjustment to your credit card payment
If you carry a credit card balance from month to month and are only making the minimum payment, consider making a change to your monthly payment. Designate a small amount from each paycheck to use to increase your payment, and use Online Banking to schedule it on a monthly basis. This way, when rates go up, you may already be saving money by paying less interest on your credit card payment.
Our reprice program can help
Over the course of each year, we periodically evaluate members' financial standing. In doing this, we look for factors such as timely bill payment and credit score increases. If we determine that you've made great strides to improve your financial health, you might be selected to receive a lower rate on your credit card or loan product. With interest rates going up, this program can be a huge benefit to members, and another motivating factor in staying financially healthy.
Rising interest rates affect everyone, regardless of what types of accounts you hold. Since we're all in this together, it's in our best interest to help you plan, save, and spend carefully. Remember; when you do well, the credit union does well.
If you're wondering where you are in terms of financial health, consider using our free Financial Health Check service. In a 30- to 45-minute call, one of our specialists will take a look at your expenses, listen to your financial goals, and help you make a plan to get there.
Other questions or concerns? Give us a call at 800.233.2328.