Lower Rates to Boost Consumers

For the last decade, interest rates for loans, credit cards, mortgage and other interest sensitive transactions have remained low in order to support economic activity following the 2008 financial crisis.

If you apply for a mortgage loan to purchase a home, lower mortgage rates will mean that the home purchase will cost you less.  Home purchase affordability can be affected by volatility and changes in mortgage borrowing rates.
As the U.S. economy sees sustained economic stability and growth, we can expect interest rates to rise slightly, but for mortgage rates to remain low relative to historic averages over the last 30 years.  Many factors will continue to put a sluggish pace to economic growth, such as lower productivity and under employment, but we can expect home prices to remain stable as home builders continue to put restrictions on new home construction.

As we discussed above, when it comes to borrowing money for a mortgage, lower interest rates give consumers more borrowing power. When consumers spend more, the economy grows. Higher interest rates encourage people to save more, and borrow less, and reduces the amount of money in circulation.  With lower borrowing rates, we can expect to see an increase in overall transactions for credit cards, business investments and mortgage borrowing which puts money in motion.

One of the few surprises from the Federal Reserve announcement is that in 2017, there may be two, or three, additional interest rate increases.  Interest rate policy is very data dependent and the outlook for the Federal Reserve’s economic forecast can be influenced by fiscal policy from the federal government.  If we see lower income tax rates for individuals under a Trump administration, we can expect the additional spending power from lower taxes to find it’s way into the economy.

Here’s what the interest rate increase may mean for you:

1. Checking, savings, CDs & IRA CDs: For Consumers with savings accounts, they may start seeing slightly higher savings interest.
2. Credit cards: Most credit cards carry a variable interest rate. So, credit card interest rates will likely go up—but modestly. Try to avoid carrying a balance!
3. Home Equity Lines of Credit (HELOC) and other variable-rate products: In general, the rate that banks charge on many HELOCs, and other lines of credit is a variable rate, so they will be affected, but only slightly since we expect future rate hikes to be very modest and slow.
4. Adjustable-rate mortgages: These mortgages, often called ARMS, are tied to a different index which can change only at specific time periods, usually annually. The rate hike could cause your mortgage rate to increase on your next rate change date. If rates remain low, an ARM may be a beneficial mortgage agreement.
5. Existing fixed-rate loans: Interest rates on car loans, fixed-rate mortgages and other existing fixed-rate loans won’t be affected. Currently, an average mortgage rate is about 4%. Going forward, that may increase.  Mortgage rates for fixed loans such as a 30 year fixed mortgage can vary from lender to lender, it’s important to compare multiple lender offers for a mortgage before locking in your low interest rate.