Lets Talk Interest Rates For 2016

Lets Talk Interest Rates For 2016

It’s a new year, and maybe your plan is to refinance your mortgage, tap into your home's equity or finally replace your old car.

But before you make a move, take note of interest rates, which can have a big impact on how much you spend — or save — over time.

“Knowing your interest rate and shopping around to get the best rates are important details of money management, whether it is prioritizing debt repayment or earning the best return on your money,” says Bankrate.com chief financial analyst Greg McBride, who has released an interest rate forecast for 2016.

On the heels of the Federal Reserve’s historic move in December, when it hiked interest rates for the first time in nearly 10 years, McBride believes the Fed’s benchmark rate will be boosted two or three times this year, putting the rates at 1% by the end of 2016. Currently, the rates range from .25% to .50%.

Still, that’s fewer hikes than predicted by the Fed itself. “The Fed has a track record of overestimating economic performance as well as their own level of action," McBride says. “The reality is slow economic growth, low inflation, and issues around the globe will keep the Fed on the sidelines more often than they think.’’

Here are some of McBride’s other projections, and tips from him and financial planners on what these interest rates might mean for consumers.

Time to refinance or buy a home

McBride sees the benchmark 30-year fixed mortgage rate hovering between 4% and 4.5%, finishing 2016 at the high end. As of Thursday,   it stood at 4.05%. Meanwhile, homeowners who currently have adjustable-rate mortgages that are resetting this year may see hikes ranging from half a percentage point to 1¼ points.

“Depending where in the year your reset falls, that will dictate the increase you’re seeing," he says, “but it’s going to be an increase because those interest rates have come off the bottom."    That means "now’s a great time to refinance and lock in a fixed rate."

In addition, despite rising rates, now is also a good time to think about buying if you've got the savings and are prepared. “The economy is doing well, unemployment is low, people are finally starting to see more money in their paycheck and mortgage rates are at an attractive level.''

Pay off those credit cards

McBride predicts the average variable credit card rate will be at 16.5% by the end of the year, having risen as the Fed boosts rates.

“It is high,’’ he says. “Credit card debt is typically the highest cost debt households have, so avoid carrying a balance as much as possible and on those occasions  when you do have a balance, make it a high priority to get it paid off, pronto.’’

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Dated: January 22nd 2016
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