Rising Interest Rates May Impact The Type Debt Consolidation Loan Taken

Over the years you may have noticed that there is a significant increase in the rate of interest on loans whether it is any traditional one or a debt consolidation loan as well as revolving credit. This is considered one of the most primary reasons for the growth in the economy. However, to consider this to be beneficial for the nation or for its citizen you will need to know how such changes in the law has affected the borrowing ability of any individual as well as the type of loans to borrow.

Typically, the rise in interest is the consequence of the central bank of the nation, the Federal Reserve. It regulates these rates with its changes in the rate it charges from the banks. These changes are made from time to time to reduce if not eliminate the risk of extreme and unwanted inflation. In fact, back in June 2018, The Federal Reserve made a rate hike for the second time in the year after it maintained a low rate for a long period.

Economists and several experts are of the opinion that more such changes are round the corner and upcoming. Few even suggest that there may be as many as five more hikes by the end of this year.

The effects

The effect of such changes in the rate of interest can mean a lot to you especially when you want to take out a loan to consolidate your multiple debts.

  • Such increased rate of interest will have a varying effect on the existing variable interest rates whether you take a debt such as credit cards, HELOC or any other mortgages with adjustable rates.
  • It is therefore good to consider consolidating all those debts that carry a high interest variable rate into a fixed rate loan option while the interest rates are still low such as in the home equity installment loan.
  • If you are a homeowner with higher rates you will save on your monthly payments if you take on a home equity loan to consolidate your debts irrespective of the fact that it carries a fixed or a variable rate of interest.

This means when you apply for a low interest fixed rate home equity installment loan you will not only save money but will also accelerate your debt consolidation and along with it reach your reduction goals. All you have to do is apply before the Federal Reserve raises the rates again.

Reason to opt for a home equity loan

A part of the deal when you apply for a home equity loan is the fixed APR that is usually lower in comparison to the interest rates on credit cards, personal loans, or any other lending products. This option is much more feasible than any other debt relief options that you may find from different sources such as nationaldebtreliefprograms.com or others.

  • Securing a home equity loan is also favored option to borrow money to consolidate your debts because it will cost to less than any other product as you will need to put your home as collateral. Though there is a fair bit of risk of putting your home in the line of fire providing the lender with the legal right to confiscate it in case you fail to make the payments, you can always minimize it if you are careful and know the pros and cons of it.
  • If you consider all your available borrowing options you will find that in spite of the risk of losing your home, this is the most favorable option. This is because when you borrow money at a low rate of interest to pay off all your higher rate of interest debts and then repay only one monthly payment, you will automatically save money and put more toward principal. In turn this will help you to clear your debt even faster.
  • Moreover, if you borrow a fixed home equity installment loan it will offer you am interest rate that is locked in and a fixed monthly payment for the entire life of the loan. That means you will not have to care for and worry about monitoring the interest rate fluctuations which by it is a very tedious and difficult task that may lead to several errors.

Therefore, a fixed rate home equity installment loan is much better than the variable rate accounts such as the credit card debt or the Home Equity Line Of Credit or HELOC. These products that typically have a variable interest rate will move just as the prime rate changes according to the market and government policy.

Add to the above, a fixed rate loan will cover the both the principal as well as the interest when you make the monthly payment. It is for this reason you will find it easier to repay the loan in full according to the original terms of the loan. In short, this type of loans will give a lot of stability to make the monthly payments making it consistent and therefore will also help you to budget more effectively, proficiently and accordingly.

It is all about timing

Timing is important when you take on a loan considering the fact that everything depends on the arte of interest on any type of loan.

As of now, the rate of interest overall is fairly at low level but it has already started to increase the past one year or a year and a half, according to the report of the National CPA Financial Literacy Commission.

Other surveys and studies conducted by the Core Logic Home Price Index Forecast reveal that the rate of mortgage is expected to rise by about 0.82% very soon. They have concluded that this increase in the rate of interest will impact the home equity lending scenario dramatically.

That means, if you follow these reports and facts and consider consolidating your debts with a home equity loan it is better that you do it sooner than later so that you can avoid the effects of any further hikes in the interest rates.