What Do Rising Interest Rates Mean For Average Americans?

The Federal Reserve's decision to raise interest rates affects every day Americans. Their payments on home equity lines of credit will be going up, and mortgage rates will be rising.

ROBERT SIEGEL, HOST:

For nearly a decade, we've had extremely low interest rates. Now the winds are changing. The Federal Reserve this week pushed rates higher and is expected to keep nudging them up over the next year. To find out what rising interest rates mean for Americans who have home loans, student loans, other kinds of loans, we turn now to NPR's Chris Arnold, who heads up our up our money and life coverage. Hi, Chris.

CHRIS ARNOLD, BYLINE: Hey, Robert.

SIEGEL: What would you say is the most important thing for people to understand about rising rates?

ARNOLD: Well, Robert, I would say it's the same thing as when we're talking about the stock market crashing down or stocks rising up - that you don't want to freak out and make any sudden moves that might not be that well thought out. And I was talking this week with a financial adviser, and he got a call from a client who was saying, well, I guess we have to buy a house now. What's going to happen if we don't buy a house? And he said to her, well, look; aren't you guys moving in two years? And she said yes. And he's like, well, no it makes absolutely no sense to buy a house.

And likewise, we got a question from a listener - Sarah Kemmer (ph) in Massachusetts. And basically, she was planning to buy a house next year and was wondering, should we bump it up to this year? Generally, you just don't want to rush it. Interest rates are going to rise, but it's going to be pretty gradual. And you don't want to rush out there and buy a house that has two bedrooms and no garage when you really want a bigger house with a garage. Now, that said, if you see a dream home and you've been on the fence, you're basically ready to buy, now is really not a bad time to buy because rates are still very low historically.

SIEGEL: But rates are likely to be going steadily higher. The Fed is projecting that it'll raise its Fed Funds rate by about 2 full percentage points by the end of 2019. So that's what the future looks like.

ARNOLD: That's right. And mortgage rates won't track that exactly. There's a lot of moving parts. But rates are headed higher. So if you're in an adjustable-rate loan, it's probably a good time to run the numbers on getting into a fixed-rate loan. And for a home loan especially, there's just peace of mind in that - knowing that, OK, every month, this is my payment. It's not going up. I don't have to be nervous.

If you have a home equity line of credit, those are variable. But the money you've borrowed already you can often lock into a fixed rate, so that's something to look at. And I spoke with Trent Porter, who's a financial planner out in Colorado. He says, again, you don't want to overreact, but you also don't want to ignore rising rates either.

TRENT PORTER: There's also the potential for it to kind of be like the frog in boiling water that doesn't realize that - where all of a sudden, the next thing they know, they look down, and they're like, jeez, I didn't realize that my home-equity loan was going to go up, you know, this much in payments after this amount of time.

ARNOLD: So, Robert, you don't want to be that frog in the boiling water.

SIEGEL: No. What if you're a frog with a student loan or a credit card?

ARNOLD: (Laughter) Well, student loans get complicated. A frog with a credit card - let's start with that because that's pretty easy. Whether it's two years ago, two years from now, you don't want to have credit card debt. I mean the interest rates on most of these cards are super high, I mean kind of usuriously high. So you know, pay that off as quickly as you possibly can.

Student loans - a little more complicated. Some people aren't allowed to refinance. But the bottom line is, federal student loans are fixed - so no change there. Some private student loans are adjustable. So if you're in one of those - and also, like, let's say you got it five years ago, six years ago. You were a student or a recent graduate. Your credit score might be a lot better now. So now might be a very good time to try to get qualified for a better interest rate on a fixed-rate loan.

SIEGEL: Now, Chris, I understand that NPR has a Facebook group for people who have questions about interest rates or other personal finance questions, and they can pose those questions there.

ARNOLD: That's right. If you go to npr.org/moneyandlife, that'll bounce you to the group. You can join the group. And people ask all kinds of personal finance questions. And honestly I'm amazed by the quality of information. It's very cool. Check it out.

SIEGEL: OK, that's NPR's Chris Arnold. Chris, thanks.

ARNOLD: Thanks, Robert.

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