Financial plans unlikely to change due to interest rates, advisers say – InsuranceNewsNet

The Federal Reserve threw a bucket of ice water on the economy this week by raising its benchmark interest rate from 2.25% to 2.5% in a bid to tame runaway inflation.

This increase, combined with another 0.75% increase just a few weeks ago, is the largest rate hike in years and stands in stark contrast to interest rates during the depths of the COVID-19 pandemic. , when held close to zero. This has left many ordinary investors and consumers wondering how to proceed in a volatile environment.

Should they buy a new house or buy a new set of wheels? Or should they wait a while in the hope that interest rates – and hopefully prices – will come down to earth?

“If you find the house you love or the car you want, you should move on,” according to Don Detts Jr.., a Certified Financial Planner with Wells Fargo Advisors at South Point.

Sara Botkin of Botkin Family Wealth Management in the Township of Peters agrees, “Don’t let these things derail your long-term financial plans.

Detts and other financial advisers in the area pointed out that even though interest rates on a 30-year fixed-rate mortgage are now at 5.54%, just over double what they were there. one year, rates are still much lower than they were 40 years ago, when Federal Reserve broke the back of inflation with punitive rate hikes. At that time, interest on fixed rate mortgages could reach 13%.

“They’re getting closer to normal,” said Gary Boatman of Boatman Wealth Management in Monessen. “They’ve been down for so long.”

On the other hand, homeowners with adjustable rate mortgages or home equity lines of credit will end up paying more due to rate increases. Federal Reserve chair Jerome Powell hinted that another increase could arrive in September.

Rob Vettorel, a financial adviser with Washington Financial, pointed out that if you’re looking to buy a home now and then resell it in three to five years, you may not be able to recoup your investment. But if you plan to stay in the house for several years, you should be fine.

The interest rate on federal student loans is also fixed, so current loan holders won’t see their rates go up. However, anyone who takes out a new loan will see a higher rate compared to what has been available in recent years.

Regardless of the season, financial planners also advise against carrying large amounts of credit card debt, and these rates will also rise due to interest rate increases. These rates currently average between 15% and 19%, and the amount of interest charged by businesses is expected to increase over the next two billing cycles. According to Botkin, “We have always advised our clients to have a low level of debt.”

In contrast, the interest rate on savings has been abysmal for the past two years, and the Fed’s rate hike is unlikely to immediately improve the outlook for anyone with a lot of cash stashed in the bank. Vettorel pointed out that banks are sitting on piles of cash and interest rates on savings rise when banks want deposits.

In the short term, rising interest rates should cause challenges, whether in the form of higher unemployment or increased borrowing costs. A recession is also a distinct possibility, but Botkin thinks it’s a price we may have to pay to get inflation under control.

“If a recession is what it takes, so be it,” she said.