Higher interest rates encourage people to save their money because the interest on savings accounts gets higher. They can also make it more difficult to get a loan or take out credit. Therefore, there is less money in the market and less demand for goods and services, which can slow inflation.
If federal rates rise, you could end up paying more when you take out a loan. Additionally, it might be harder to get approved for a loan once they become more expensive, as lenders may become more nervous about getting full repayment.
Here are some things you can do now to take advantage of low interest rates while they last:
Lock in Your Mortgage Rate
If you’re looking for a new home, now is a great time to take out a new mortgage. Although previously low mortgage rates have already risen with mortgage lenders anticipating the Fed’s actions, they are predicted to rise further throughout the coming year. This could make it harder to qualify for a mortgage given the higher financial commitment. And a higher rate could result in you having to repay thousands of dollars more over time.
Therefore, getting a better rate while you can is a good idea. Something to consider is activating the mortgage rate lock, which guarantees the quoted rate for 15-60 days while the loan is closed. You may be able to get an extension if the loan process takes longer. Locking your rate can save you thousands over the length of your mortgage by making sure you get the best rate possible.
If you already have a mortgage, now is a great time to refinance. This is particularly true if you have a variable or adjustable-rate mortgage, which could be affected by an increase in interest rates. Many people didn’t take advantage of the low mortgage rates available during the pandemic, and converting to a fixed-rate mortgage can help mitigate the impact of the coming rise in interest rates. Switching to a fixed-rate loan might also be wise if you have a home equity line of credit (HELOC). As with a mortgage, this will fix the rate of interest on your repayments against any credit you take out via your HELOC, so you’ll ultimately pay less.
Refinancing could also help you lower your monthly mortgage repayments, which is useful in times of rising inflation because you’ll have more cash to spare. You may also be able to shorten the term of your loan. However, you should consider the fees you may have to pay to refinance, which could add a significant cost.
Our Recommended Mortgage Loan Provider
For refinancing or taking out a new mortgage, AmeriSave is worth a look. Its online pre-qualification service provides a detailed rate quote in minutes, and you can get a range of mortgage loans including Jumbo for more expensive properties and USDA for rural properties. AmeriSave’s service is available in 49 states.
Refinance Your Private Student Loans
Although federal student loan payments and interest were paused as a result of the pandemic, those with private student loans have still had to pay. Refinancing your private student loan can be a good choice right now so you can take advantage of low interest rates before they potentially rise. This is particularly important if your private student loan was not a fixed-rate loan because you won’t have the low interest rate locked in.
Student loan refinance companies pay off your existing debt and set up a new loan, which can have preferential terms, including a lower interest rate. This is especially true if you have a good credit score and stable income.
If you have a federal loan, refinancing may not be the best idea, as converting to a private loan can remove some of your consumer protections. There is also the possibility that federal student debt will be forgiven, which you’ll miss out on if you switch to a private loan.
Our Recommended Student Loan Refinance Provider
Credible is a great option for student loan refinancing. You can use its free service to compare loans from 13 providers without affecting your credit score, and an offer can be made in as little as one day. Credible’s service makes it very easy to find personal student loan refinance options and decide which one is best for you.
Apply for New Personal Loans and Consolidate Your Debts
The same principles apply to personal loans. If you were thinking of taking out a new loan, now is the time to take advantage of low personal loan rates. However, the importance of this depends on the type of personal loan you want to take out. For example, auto loans are not massively impacted by higher interest rates because they are usually shorter and for lower amounts than some other loans. At the same time, if you’re looking to consolidate your debts, taking out a consolidation loan at a lower rate now can save you a significant amount of money in the long run.
If you have credit card debt, a loan can be one way to tackle it before rising interest rates make it more difficult to pay off. A debt consolidation loan merges your different debts into one by paying them off. You then just have to make payments to one lender, which can be more manageable, enabling you to lock in a better interest rate and save you money over time.
Taking out a debt consolidation loan can also simplify your finances. But it’s important to do your research before committing. If your credit score isn’t great, you may not be able to access lower interest rates. Additionally, missed payments can result in a late payment fee, which can lower your credit score even further. It’s important to consider whether this is the right course of action for you.
Our Recommended Personal Loans Provider
It's easy to find the personal loan you need with Credible. Credible is an online loan marketplace that allows you to compare loans from 18 providers without affecting your credit score. You can get personalized, pre-qualified quotes within minutes, and repayment terms up to 7 years.
Our Recommended Debt Consolidation Loans Provider
National Debt Relief (NDR) offers a free consultation and works with certified arbitrators to help you get an affordable debt relief plan. There are no sign-up or cancellation fees involved in NDR’s service, although you will need to pay a fee of 15-25% of the total debt enrolled once debts are settled.
Because rising interest rates can make it more difficult to get and pay off loans, now is a good time to take action in several key financial areas.
Taking out a new mortgage or refinancing your current mortgage to lock in low mortgage rates can save you significant amounts of money over the length of your loan. Refinancing private student loans is also a good idea. And if you have debt, exploring debt consolidation loans can help you pay off your credit card bills before interest rates make this more difficult.
Although it’s important to do your research before committing to a new or refinanced loan, putting in some time and energy now can help you save thousands of dollars in the long run and make it more likely that you can get approved for the loan you need.