Here’s how rising interest rates affect bond prices, home mortgage rates and more.
Prepare for rising rates.
The Federal Reserve raised interest rates by 0.75% on June 15 in the biggest increase since 1994. This was the third rate increase in 2022 and the most aggressive in the Fed’s efforts to rein in soaring inflation. This means prospective homebuyers, homeowners with variable mortgages and investors will begin to feel the effects of rising interest rates, if they’re not already. To protect your money, here’s what to watch for when interest rates go up.
Variable loan costs rise.
Borrowers holding a variable prime rate loan, also known as an adjustable rate loan, will see their payment amounts rise as interest rates rise. Unlike a fixed rate loan, the cost of a variable loan can climb quickly. These loans may be mortgages, personal loans or car loans. When interest rates are poised to rise, it may be wise to convert a variable loan into a fixed loan or pay off the variable loan as soon as possible.