July 10, 2018

A Little Help With Interest Rates

By Brandon Hansen, Cherry Creek Mortgage

As weather brings rising summer gas prices it also brings in rising interest rates. Right now, as we start to feel the heat of the summer months coming, we also have started to feel the heat with rising interest rates. Today, we have the highest interest rates that the market has seen in four years. So, here is a few thoughts to help hedge these interest rates as inevitably they will continue to increase.

1. Fix as much debt into fixed rates from Variable rates on all loans. One thing to look at is your credit card debt. Interest rates on these cards are the first to climb and they probably have increased roughly 2% over the last year. If we have 20,000 or 30,000 in credit card debt the interest on these cards is hard to keep up with. The minimum payments would take over 10 years to pay off the cards, and we also continue to use them monthly. So, catching up with these cards is a tough thing when they have a high variable rate of interest.

A. Look at refinancing the home mortgage. The mortgage is your biggest tool in trying to work against interest rates today. The home mortgage is a fixed rate and probably the lowest interest rate you can get with any loan as it is the most secured. So, generally it is always the lowest source of interest and easier to catch up with payments.

B. Combine your credit card debt with the refinance of your home. Using your home to pay off all credit card and commercial debt is crucial in keeping up with rising interest rates. You will replace credit card debt at for example 15% with mortgage debt that is not only 4.8% but it is a fixed interest rate that can never change. This will save you not only money today, but a lot of money as interest rates move higher.

C. Pay off your second mortgage or equity line of credit with your mortgage loan. The equity line of credit or your second mortgage is usually a variable rate of interest. Most likely this rate has also increased to a rate higher than your primary or first mortgage. So, two things happen with an equity line of credit. 1. Interest rates are climbing as mentioned so this rate and payment will continue to go up. If we owe 50,000 to 100,000 with an equity line of credit and that rate increases it will continue to be more expensive quick. 2. These loans are usually interest only, so they don’t get paid off unless of course you make higher payments and pay toward the principal. The concern is after 5 or 10 years, they don’t let you pay interest only anymore, so you are forced to pay principal and interest and the payment is now based on a 20-year amortization, so the payments usually more than doubles in payment from what you are paying today.


2. With rising interest rates, it helps savings and investments for the most part as you are on the right side of interest rates instead of the debt side. It is frustrating when you are paying 5% for example on a mortgage and you are only getting 2% or less on your savings accounts or CD’s. there is always a spread. So, the goal is to fix interest rates on all our debt and move as much of our savings into investments and CD’s that will benefit from the higher interest rates.

A. Talk to your investment advisor about rising interest rates and see what you are doing today and or not doing that could benefit from rising interest rates in the next few years.

We would love to help with your debt and mortgage so that we maximize the benefits of the loan and payoffs of cards and other. In addition, if you need us to review your savings and investments as to their allocations and what you are doing and or not doing we would love to take a few minutes and see if we can help. Regardless of who you use, please work on making sure your debt is fixed and your savings can benefit in the climate that is now here and will continue to increase.

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