As we bid adieu to 2018 and say a hearty hello to 2019, it’s a great time to take a moment to look at how things are going in the personal finance arena. Let’s take a look at some of the latest personal finance news and lending news and what it all means for you going forward.
The Federal Rate Hike
In the middle of December, the Fed announced the year’s fourth increase in the federal funds rate, taking the number from 2.25 percent to 2.5 percent. You’re sure to have heard and read about it, as it was all over the lending news and personal finance news. But what does this mean for you? And what is the federal funds rate, anyway? Let’s take a moment to understand what this term means. The federal funds rate is the rate that banks charge each other for overnight loans. The Federal Reserve increases the rate by decreasing the amount of money supply in the banking reserves system. Because the supply is down, demand for cash goes up, causing interest rates to rise.
Now that interest rates are up thanks to the federal rate hike, what does that mean for you? There are pros and cons: for savers, it means better returns on your savings, especially on CDs. For borrowers, as you may have heard in the lending news, it means you need to shop around for a loan. Rates will vary widely from one lender to the next, so do your homework, as it could easily save you thousands in the long run, especially when you’re borrowing large amounts of cash, such as on a mortgage loan or commercial loan. Don’t want to do all that legwork yourself? Then consider working with a broker who will do the shopping for you.
Carrying credit-card debt? Interest rates will increase here as well, so be on the look-out for 0% introductory credit-card offers or consider a cash-out refinance or home-equity loan. If you decide to open a new card, you can roll any high-interest debt onto the new plastic as a balance transfer, then pay as much off as possible before the introductory rate expires. Going the cash-out refi or home-equity loan route instead? With a cash-out refinance, you borrow more than the home is worth in order to use the excess to pay off your cards (and sock some away to avoid getting into debt again). Similarly, with a home-equity loan, you would borrow what you need to pay off the loan and again, put some cash into savings to avoid future reliance on credit cards.
Rising Mortgage Rates
You’ve probably noticed that mortgage rates have been mentioned in the personal finance news section a lot lately, and that’s because, even though rates dipped sharply in December, they are forecasted to continue to increase over the next year. However, rates are nevertheless quite low—the historical average for the last 47 years is 8.1%!—so it’s still a great time to buy a home. And, even though the numbers are projected to continue to increase, mortgage interest rates actually fluctuate on a daily basis.
Plus, as mentioned, mortgage rates can vary significantly from one lender to the next, so you shouldn’t be discouraged if you’re quoted a rate that’s higher than what you’d been looking for. It’s still very possible for you to lock in a great mortgage rate, so go ahead and shop around. Rest assured, your credit score won’t take a hit every time you approach a new lender. As long as all your inquiries are within a 30-day timeframe, all those inquiries will be treated as just one.
“We’re listening carefully with – sensitivity to the message that the markets are sending and we’ll be taking those downside risks into account as we make policy going forward”. – Jerome Powell
More ARM Loans
Throughout the last year, many lending news outlets have also reported on adjustable-rate mortgages (ARM loans), noting that they’ve slowly increased in popularity as interest rates are on the rise. The basic premise behind the ARM loan is that it offers borrowers a relatively low fixed-interest rate for the first several years of the loan. After this time period ends, your mortgage becomes an adjustable-rate loan that varies as the market fluctuates.
Buyers can save a significant amount of money on interest on these loans, so it may come as no surprise that, as personal finance news outlets have reported, ARMs are most popular on very expensive real estate (the higher the loan balance, the higher the interest payment, so ARM loans on high-priced properties can yield very substantial savings). Is an ARM loan right for you? Find out which type of loan is best for your situation by checking out our ARM vs. FRM blog post.
Do you have an ARM loan that you took out years ago, and the introductory rate has since expired? Now might be a good time to refinance into a fixed-rate loan. More rate hikes are projected for 2019 and 2020, so it’s wise to lock in your rate now, especially if you plan on staying in your home for several years or more.
Make 2019 Your Year!
Now that you’re armed with the lending news and personal finance news you need to make some wise money moves in 2019, you may be considering taking out a new loan, refinancing an existing mortgage, or making some other changes to your current financial situation. Or, maybe you’re not sure if you need to do anything at all, but you want to make sure you’re borrowing money wisely. So give us a call! We’ve got our fingers on the pulse of the financial markets, and we can help you structure your borrowing in the most advantageous way. By borrowing strategically, you can save hundreds to thousands—possibly even many thousands—of dollars in the long run. Contact Villa Nova Financing Group today to schedule a consultation.