Those paying attention to the U.S. financial markets have probably seen plenty of news about rising interest rates.
Not only have mortgage rates jumped to more than four percent following the November election results, but the Federal Reserve recently opted to raise its rates for the second time in almost a decade.
That means the Federal Open Market Committee decided to raise its target rate range from 0.25-0.50% to 0.50-0.75%. The last time rates were raised was a year ago, in December 2015. Before that, rates were lowered to zero during the 2008 financial crisis.
The rates set by the FOMC are tied closely to banks’ prime rates. These are used to determine the interest rates they offer on a variety of lending products like credit cards and student loans.
So what does this mean for your money?
Interest rates rising will mean that borrowing will get more expensive in 2017. Especially since the FOMC announced it expected to implement three more rate hikes in 2017.
However, it also provides some opportunities to earn greater returns, as well. Here are some moves you should make in 2016 to capitalize on rising interest rates throughout 2017.
1. Refinance your student loans
If you have student loans with higher rates (think six to seven percent or higher), refinancing them could be a smart option for you.
Some of the best lenders to refinance student loans with, like LendKey, are offering rates as low as 1.90% APR. But with interest rates on the rise, these significantly lower student loan rates might be more and more scarce in 2017. Want to get a sense of whether you might qualify to refinance? Take our refinancing eligibility quiz!
Essentially, student loan rates today are the best you’ll get for a while. So if you’ve been considering a student loan refinance, it might be time to pull the trigger and lock in a lower interest rate.
Your chances to save will be much better now rather than later.
2. Switch to a fixed rate from a variable
If you have a product with a variable rate, you can expect that rate — and your monthly payments — to go up in 2017.
Following the FOMC’s announcement of an interest rate raise, several major banks like JPMorgan Chase and Citi also bumped their prime rates up from 3.50% to 3.75%, according to CNBC.
Banks’ prime rates are also tied to variable rates on products like credit cards, adjustable-rate mortgages, or variable-rate student loans. When a bank’s prime rate goes up, these products’ variable interest rates go up the same amount.
If you have a loan with a variable rate, this might be another reason to consider refinancing it soon. With a refinance, you can pay off the variable-rate loan and replace it with a fixed rate loan, instead.
Of course, variable rates often start lower than fixed rates. So it’s possible that you might not see savings when refinancing to a fixed rate for a year or more.
But if you have better credit now than when you originated your variable rate loan and are willing to switch to a shorter term, you could be a good candidate for refinancing to a fixed rate. Especially if you don’t like taking the risk of a variable rate going up in the coming years.
3. Pay down debts with variable rates
For many borrowers, refinancing their variable rate loan might not make sense. As mentioned above, it’s possible that sticking with the variable rate could still be cheaper than a similar fixed-rate loan.
Or, perhaps you don’t have the credit to qualify for a refinance with a lower rate. Keep in mind refinancing may require you to pay origination and loan fees which would potentially cancel out any savings on your end.
However, there are other ways to pay less on your loan. Even if your variable rate adjusts upward.
If you pay down extra towards your debts, for example, you’ll lower your principal. And, you’ll have a smaller balance each month that you’re getting charged interest on.
Making extra payments can also help you pay your loan off ahead of time. Ultimately, this will give variable rates less time to go up and become unaffordable.
4. Shop around for a credit card
With variable rates set to rise, your credit card could suddenly be more expensive.
A 0.25% raise in prime rates will mean that your variable credit card rate can jump by one to two percent, according to The New York Times.
It doesn’t sound like much, right? But a raise from, say, 15 percent to 17 percent would add around $20 in interest costs for every $1,000 in credit card balance you carried throughout the year.
If your credit card rates are already pretty high, another bump will only make this kind of debt more expensive for you.
Therefore, finding a new credit card with a lower interest rate can save you money. Especially if you tend to carry a balance month-to-month. This will be especially true as rates continue to rise.
If you have a high credit card balance, the best move might be to consider opening a new card with a zero percent introductory rate. You can transfer your balance to the 0-rate credit card and work toward paying it off without accruing any interest.
5. Work on your credit
One of the most effective ways to get cheap credit is to maintain good credit. Although rising interest rates are outside of your control, your credit history is something you can directly improve and positively impact your finances.
So if you’re planning on making a big purchase in 2017 that you’ll need a loan for, focus on cleaning up your credit.
Remember, rising interest rates won’t affect the rates you’re offered on a car loan, for instance, as much as your creditworthiness will.
So if you work to improve your credit in 2017, you’ll put yourself in a position to get the best interest rates available. Whatever rate hikes might come.
What should you focus on to build credit?
First off, you’ll never have excellent credit if you’re not making on-time payments on your existing credit. So if this is a struggle, start there.
And if you don’t have any credit, consider getting a secured credit card and making payments responsibly on it. That can be a good place to start building credit.
If you have a credit card, keep up with your payments by making them on-time. This can help keep credit card balance low each month and give you a lower credit utilization ratio.
At the end of the day, paying down existing debts and avoiding taking out lots of new debt will help your credit score go up.
6. Shop for better deposit rates
The biggest effect rising interest rates will have on consumers will be that credit will become more expensive.
But, theoretically, if banks are charging higher interest rates, then they might have more margins to give borrowers better returns on deposits.
However, the last rate hike in December 2015 didn’t actually result in higher savings or deposit rates at most banks.
If banks do raise their deposit rates, it will likely be a very small bump. And it won’t come until around mid-2017, projects USA Today.
But just because most banks won’t be offering higher savings rates doesn’t mean they aren’t out there. Some financial institutions that make a point of offering competitive savings rates might offer even better deals.
And, savings rates over 1.00% might be easier to find. Check online banks, credit unions, and smaller, community banks for deposit products that offer higher returns.
How does rising interest rates affect you?
Overall, rising interest rates will have a relatively small impact on most consumers’ finances. The increases will be small, but they will be there.
If you keep an eye on your debts and make some of these smart financial moves, you’ll put yourself in a position to avoid the worst of rising interest rates. And you might even be able to take advantage of higher rates to grow your savings.
Do you have any thoughts on the Fed’s recent decision to raise interest rates? Share them in our comments section below!
Interested in refinancing student loans?Here are the top 8 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.20% APR (with Auto Pay) to 6.99% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 6.89% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of December 13, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 12/13/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for SoFi.
3 Important Disclosures for Figure.
Figure’s Student Refinance Loan is a private loan. If you refinance federal loans, you forfeit certain flexible repayment options associated with those loans. If you expect to incur financial hardship that would impact your ability to repay, you should consider federal consolidation alternatives.
4 Important Disclosures for College Ave.
College Ave Disclosures
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
1College Ave Refi Education loans are not currently available to residents of Maine.
2All rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
3$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees.
4This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
Information advertised valid as of 1/1/2020. Variable interest rates may increase after consummation.
5 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association.
ANNUAL PERCENTAGE RATE (“APR”)
There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account.
For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans.
ELIGIBILITY & ELIGIBLE LOANS
Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements).
Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment.
All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for applicable terms and conditions.
For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned.
The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency.
The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired.
POSTPONING OR REDUCING PAYMENTS
After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship.
We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends.
We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment.
If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of November 8, 2019 and is subject to change.
6 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers.
7 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 1.76% effective November 10, 2019.
8 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 12/019/2019 student loan refinancing rates range from 1.90% to 8.59% Variable APR with AutoPay and 3.49% to 7.75% Fixed APR with AutoPay.
|1.99% – 6.89%1||Undergrad & Graduate|
|2.31% – 7.36%2||Undergrad & Graduate|
|2.06% – 6.81%3||Undergrad & Graduate|
|2.62% – 6.12%4||Undergrad & Graduate|
|1.99% – 6.65%5||Undergrad & Graduate|
|1.99% – 7.06%6||Undergrad & Graduate|
|1.85% – 6.13%7||Undergrad & Graduate|
|1.90% – 8.59%8||Undergrad & Graduate|