When people think about interest rates, they usually are thinking about mortgages and savings accounts. Those are the two main places that interest rates affect the general public. And the great thing about these two places is that individuals can compare changes in them very easily by using websites and mortgage calculators to see the effect. However, with rates rising slightly over the last few weeks, what is going to be the impact on these two things?
The Pros of Rising Interest Rates
The biggest advantage of rising interest rates is that savers (people with money in savings accounts), will earn more interest on their deposits. This means their money will grow and compound more in the higher interest rate period. There will also be better deals for high interest checking and savings accounts and money market accounts, which will benefit individuals sitting on cash.
Rising interest rates could also help possible first time home buyers by bringing housing prices down. Since it will cost more to get a loan, there may be less buyers in the market, and as such, prices could go down even further.
The Cons of Rising Interest Rates
The biggest problem with rising interest rates is that the cost of borrowing money goes up. This impacts all lending: whether it is a mortgage or credit card.
The biggest impact will be on mortgages, because that is such a large chunk of money. Even a small 0.25% change in interest rates on a mortgage can result in tens of thousands of dollars in extra interest payments over the life of the loan. If you are thinking about buying a home or refinancing your current home, now is the time to do it.
The second area that consumers will see a big impact is in credit card interest rates. Many card companies charge prime plus a set amount. That prime rate is what you hear quoted all the time. As such, if that prime rate goes up, so does your overall credit card interest rate. This can impact people that have a balance on their credit cards currently.
This is a featured post on behalf of Emortgage Calculator.