Interest rates began rising a few weeks ago, but rose very sharply last week.  Interest rates on 30 year fixed mortgages have rise over 1/3 point in the past week and the national average is now 5.36% (up from 5.00%), Bankrate.com reported.  The primary reason rates have begun to rise is due to the concern over how much money the U.S. Treasury is printing.  Nevertheless, rates are on the rise, and most economic indicators suggest they will continue to rise in the coming months.  What does this mean for you?  It could be good news or bad news for you, depending on your current financial plans and goals, but here’s how you can make the best decisions in the coming weeks and months while facing rising interest rates.

The Bad News: Act Quickly

If you own your house, you should seriously consider refinancing your mortgage.  With the downturn in the housing market, many homeowners are upside down in their homes and may not be able to.  But if you have any equity at all and can qualify for a refinance, ACT NOW!  Interest rates are (were) the lowest they have been in a lifetime, and we will probably never again see rates this low.

If you are thinking about buying a house consider buying as quickly as possible.  I do not mean to rush you in what will probably be the largest purchase you have ever made, but the ideal time to buy a house is at hand.  Not only are prices depressed or severely depressed in most areas of the country, but mortgage rates are extremely low.  I don’t expect the housing prices to dramatically turn around in the next year, but I would be worried about rising interest rates.  Procrastination could cost you dearly, as dramatically rising mortgage interest rates will cost you thousands of dollars over the term of your mortgage.  Don’t make a hasty decision, but if you are going to buy, act appropriately and lock in your rate as soon as possible.

The Good News: A Waiting Game

Have your recent money market account statements made you depressed?  Well look for your money market account and CD yields to begin to rise slowly over the next few years.

If you are buying CDs, be careful not to buy long term CDs as interest rates are on the rise.  Keep your money in money market accounts or very short term CDs (less than 3 months) to avoid being locked into longer term CDs at todays lower interest rates.  In addition to the rising interest rates, rising inflation is another reason not to buy long term CDs at the moment.  If you like to purchase CDs, try to hold off until the rates rise significantly.

Many economists believe that if rates continue to rise, the economic recovery will be delayed and take longer than originally thought.  Specifically, rising interest rates will have a negative effect on the housing market turnaround.  But regardless of the overall economy, I hope this article has been informative and you are now better prepared to make the best financial decisions as rates rise.

Photo by kevinzhengli