Interest Rate Hikes Coming for 2022: What You Should Do

Many people are worried about the long-term implications of the Federal Reserve increasing interest rates in 2022 and beyond. When the Fed increases rates, it trickles through every loan, credit card, student loan, and mortgage. Basically, every borrower will be affected. How will you make your payments if interest rates keep going up? What will happen to investments if interest rates keep going up? What can you do now to be prepared for an interest rate hike? How much money should you save if interest rates rise in the future?

In this blog, we'll explore how an interest rate hike will affect your finances and what you can do now to prepare for one.

Tip 1: Buy a house or invest in real estate now while it's affordable

 Undoubtedly, real estate prices are at all-time highs, but that's mainly because interest rates have been at all-time lows. It's a good idea to buy a home or invest in real estate now so that you don't have to worry about rising mortgage rates later this year or any other time soon. We're still sitting near historic lows. According to Zillow, the current average 30-year fixed mortgage rate climbed one basis point from 2.88% last Monday. It rose two basis points from December21st'ss previously reported figure of 2.87%. The current national average 15-year fixed mortgage rate increased three basis points from Tuesday's report at 2.13%, up to five basis points compared with last week's report at an unchanged number of 2.44%. The 5/1 ARM interest rate is also slightly up as it moves along a trajectory projected for 2022. It will rise fifteen percent by then - coming close but not crossing 4%.

If you are thinking about buying a house or investing in real estate, it may be prudent to lock in low long-term rates now. As interest rates rise, getting a mortgage loan could incur higher financing charges and interest costs.

Tip 2: Refinance your adjustable-rate mortgage into a fixed-rate mortgage

Adjustable-rate mortgages are flexible, meaning they change with the market they're invested in. These changes can be suitable for consumers in some cases but not always. When interest rates are flat yearly, it benefits the borrower. But, in a rising interest rate environment, an adjustable mortgage is a budget killer. There is no way to keep up with a mortgage payment the increases by hundreds of dollars a month every year for several years. So, trade uncertainty for certainty even if it means your new payment is a little higher at the start. You'll thank me later.

Tip 3: Get a home equity loan or HELOC now while low rates

If you plan to get a home equity line of credit (HELOC) or a home equity loan in 2022, you need to be aware that the rate is tied up with the prime interest rates. The difference between a HELOC and a loan is simple. The HELOC is a revolving line of credit that can be used as a credit card. Your credit line is based upon the available equity in your home. Monthly repayment varies based upon the outstanding balance on your line. On the other hand, a home equity loan has a set repayment schedule because you get the proceeds from the loan at closing. 

When it comes down to using the equity in your home. It is best to open a HELOC or get a loan at a low just in case something like unemployment occurs in the next few years. This is an advanced financial hedging strategy. It should only be used by someone fiscally disciplined enough to invest or save the proceeds gained for a future adverse event.

Tip 4: Pay off your credit cards and reduce debt now!

To avoid the risk of your interest rate going up, pay off as much of your debt as possible before prime interest rate hikes. Suppose many customers start falling behind on monthly payments en mass. In that case, credit card issuers will likely bump up interest rates for everyone. Just in case this happens, you should dump your debt early and cancel any outstanding balances. You can transfer balances to a new revolving-only account or just close out old ones completely with no fees attached.

Tip 5: If You're Driving a Clunker, Consider getting a new car soon

Auto loan rates are increasing, but if you need a new car and have to take out an auto loan before the Fed increases interest rates, it might be worth your while. It is best to clean up your credit score. Then set a budget for a car before negotiating the price of buying one. It's best to get a loan from a direct lender or your bank since most car dealers mark up the loan (they charge extra interest for getting your loan). If it turns out that you can't buy one until next year, shop around through credit unions and banks for advertised rates.

Tip 6: Invest in financial institutions rather than saving money because interests are more attractive

A rising interest rate environment usually means banks will pay more interest on savings accounts to attract more deposits. Despite these possible financial gains, only put a portion of money into emergency savings and invest the rest. Consider the different sectors that will perform better. For example, stocks in the industrial and retail sectors can increase when the economy improves, and interest rates increase. You may also want to consider investing in banks or businesses related to finance and investments. For example, firms like Chase or Regions benefit from higher rates on their loan products than before. It may make more sense to buy their stocks rather than put more money into a savings account at their institution. 

Tip 6: Don't Panic, Walk By Faith

No. Of course, please don't panic in light of these plans to increase interest rates. You must take a long-term view and make the best decision on your financial situation to understand that much life will go on as usual despite this rate hike. Remember, God is still in control! Rather than worry, consider putting together a list of priorities for 2022. Examine how increased interest rates might impact your overall cost of living, and pray for wisdom. Faith with works equals profit! 

Final Thoughts

Yes, interest rates are on the rise. Though no one knows for sure what the future holds, some economists predict that interest rates could reach 6% by 2022. Knowing this can help you make better investment and financial decisions NOW to prepare for the future. Try one of the strategies in this article to get started on building your wealth despite an increasing interest rate environment.