January 2nd, 2019 8:40 PM by Jackie A. Graves, President
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looms ahead as we transition into 2019. But one thing remains clear: Borrowing
costs — at least for now — are still going up.
Reserve rattled markets by raising its
benchmark interest rate in December, bringing the total number of
rate hikes in 2018 to four. Short-term interest rates will keep climbing, but
the central bank signaled that there could be two interest rate increases this
year instead of the three it previously projected.
volatility as the stock market responds to the daily news cycle, says Greg
McBride, CFA, Bankrate’s chief financial analyst. It all depends on how trade
talks with China play out, but in the first quarter, McBride says we’ll
probably see a strong market rally of more than 10 percent followed by a return
to bear market territory for the S&P 500. As the year progresses, the
economy is expected to slow while fears of an impending recession will grow.
policymakers have suggested that the next Fed rate hike may not happen for
another several months, borrowers with outstanding balances should be prepared
to pay more out of pocket.
Whether you’re struggling to get rid of
high-interest credit card debt or preparing to buy a new house or car, here’s
what rising interest rates could mean for your wallet.
Mortgage rates have fallen in recent
weeks amid market fluctuations, trade tensions and other political concerns.
But experts say that trend should soon reverse.
“After a sharp drop in December, markets are poised to
rebound any moment given the solid underlying economic fundamentals, and this
will take bond yields and mortgage rates back up,” McBride says.
investors are ready to embrace risk assets again, that won’t be good news for
analysts expect the average rate for 30-year fixed mortgages to hit 5 percent in 2019. Currently, it’s around
4.7 percent. The 10-year Treasury yield — which mortgage rates tend to follow —
could rise close to 3.5 percent before falling back down to 2.45 percent by the
end of 2019, McBride says.
rates rose almost a full percentage point over the course of 2018. But this
year, rates shouldn’t jump back up too quickly and we should be in a steadier
rate environment, says Mike Fratantoni, chief economist at the Mortgage Bankers
expect over the next couple of quarters we’ll get back on this path of low
increases in rates,” Fratantoni says. “And honestly, I expect that we’re going
to be in a pretty good position for the spring housing market with rates a
little bit lower than we have seen just a few months ago (and) more inventory
in the market.”
As the Fed
trims its balance sheet and pushes up short-term interest rates, McBride
believes mortgage rates will pass 5.25 percent. Eventually, they’ll dip, he
says, with the average rate for 30-year fixed mortgages falling to 4.35 percent
as we close out 2019.
equity borrowers will pay a bit more
Fed rate hike doesn’t mean much for homeowners with fixed-rate mortgages. But
if you have an adjustable-rate mortgage with a rate that will soon adjust or a
home equity line of credit, your interest rate is probably going up.
Most HELOCs are
tied to the prime rate, which follows the Federal Reserve’s benchmark rate.
Since the central bank raised rates by a quarter of a percentage point in
December, the prime rate went up by the same amount.
hike means the minimum payment on a $30,000 home equity line increases by $6,”
McBride says. “I expect the Fed to raise rates twice next year, bringing the
increase in minimum payments to $12.50 per month by year end.”
HELOC rates will rise and then
flatten out, McBride says. He expects the average HELOC
rate to reach 6.85 percent by the end of 2019. Borrowers
concerned about rising monthly payments can refinance and choose a fixed-rate
loan. Or they can ask lenders to freeze the interest rate tied to their unpaid
balances. Either way, there are steps you may need to take to qualify for one
of those options.
“Pull copies of
your credit report to make sure there are no errors that would
drag down your credit score,” McBride says. “Pay down other debt so your debt
ratio is in line, and most importantly, stay current on all of your
jump in credit card interest payments
holders carrying a balance will also pay a bit more following the latest Fed
rate hike. Bankrate data shows that average credit
card rates are about 17.6 percent. By the end of 2019, McBride
predicts that they’ll hit 18.1 percent.
Even with two
additional Fed rate hikes potentially on the horizon, however, the impact on
credit card holders should be minimal.
rates to rise one-half percentage point in response to two Fed hikes, but
because of minimum payments, the household budget impact is muted,” McBride
explains. “On a $10,000 balance, that would only increase the minimum monthly
payment by $4.”
are solutions if you’re feeling insecure about the amount of credit card debt
you’re sitting on. A balance transfer
credit card, for example, can save you money, and the best cards
have a zero percent introductory offer that applies for 15 months or more.
loan rates moving higher
will see interest rates rise as well before they begin to plateau.
interested in new cars, rates for five-year auto loans are
just under 5 percent. With two Fed rate hikes in 2019, McBride expects the
average five-year new car loan rate to rise to 5.5 percent. The average
four-year used car loan rate, he says, could hit 6.4 percent.
The best new
car loan rates will be in the low to mid-4s, and the best used car rates will
be in the high 4s, McBride says. Of course, to qualify for those kinds of
rates, you’ll need a
good credit score.
indicate that 2018 was a good year for the auto industry, but as rates rise,
affordability will remain a growing concern among consumers.
number of lessees returning to the market should help give dealers a boost in
the new year, but rising interest rates and vehicle costs are going to continue
to give car shoppers pause and create uncertainty in the market,” said Jeremy
Acevedo, Edmunds’ manager of industry analysis, in a press release.
borrowers have reason to proceed with caution as they move into 2019, savers
shouldn’t be too worried. After years of low yields, the rates tied to the best savings
accounts finally beat inflation.
have been slowly lifting their deposit rates off the ground, and the best savings and
money market account rates available to customers across the
country pay 2.25 percent APY or more. CD rateshave moved up as well, but with
the flattening yield
curve, long-term CDs aren’t paying that much more than midterm CDs
online savings account yields could reach 3 percent APY in 2019 but then fall
slightly (to 2.9 percent APY by the end of the year) as the economy slows down,
McBride says. Average yields for one-year and five-year CDs could finish the
year at 1.2 percent APY and 1.6 percent APY, respectively, McBride says.
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