The Federal Reserve announced in December its first interest rate hike since 2006, a move that had been highly anticipated by financial experts and consumers. The Fed indicated that there would likely be gradual interest rate increases in the future.
“I think the increase is great news,” said financial advisor Eric McClain. “Rates have been below even normal ‘low’ rates for a long time. Reverting to a normal range should be good for fixed-income investors, and should be viewed as a vote of confidence in the U.S. economy.”
The new rates can have an impact on your finances, which is why it’s important to be prepared. Click through to see 10 rules for living in a rising-rate world.
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1. Run the Numbers Before You Decide
When it comes to planning for your financial future, run the numbers to help you decide how best to manage your money, said financial writer Julie Rains. Doing so can help you determine the best course of action.
“You should no longer make assumptions that mortgage rates and student loan rates are always going to be lower than potential investment growth rates,” she said. “Sure, when interest rates are very low, as they have been over the past decade or so, it’s typically good advice to invest rather than accelerate your mortgage payment.”
For example, the spread between investment earnings versus mortgage interest rates tends to be wide — say 6 to 8 percent growth on investments, as opposed to 2 percent on a mortgage, she said. “But as interest rates rise, the financial scenarios change — and your decision-making process should also change,” she added.