Tough decisions from the Federal Reserve will need to be made as the inflation rate in the US soared to 6.8% in November 2021. That’s the highest it’s been in nearly four decades and far exceeds the targeted pace of just 2.0%. In just one month, it’s gone up 0.6%. For consumers, it means paying higher prices on everything from groceries and fuel to medical care, vehicles, and clothing. Shelter costs and related expenses have also gone up far beyond what’s targeted in the country.
To cut to the quick, it costs more to live in the United States than at any time in history. As buying power for every dollar decreases, the Federal Reserve must make moves to combat rising inflation with various means. One such method is to increase the benchmark interest rate in an attempt to slow down spending pressure, swinging the pendulum in the supply-demand relationship more towards a balance.
It’s predicted that the Federal Reserve will begin 2022 with a rate hike to around 0.9%. Although that seems like a low number, it’s only the benchmark interest rate and doesn’t reflect actual borrowing rates for consumers or companies. What’s more, an initial rise in interest gives financial experts an idea that three rate hikes throughout the year are possible.
The Fed is attempting to slow economic growth to a sustainable rate with the goal of managing affordability, but in the short term it can have an opposite effect. Higher interest rates mean it’s more expensive to make payments on borrowing, especially for adjustable rate products, and receiving any new credit can be more difficult and cost more over the full amortized term.
What’s the solution for inflation-related interest hikes?
Little can be done to reverse the Fed’s course on inflation combat, but there are things you can do as a homeowner or investor that can help you feel the effects less.
Minimize unsecured debt
Unsecured debt like credit cards, personal loans, student loans, and medical bills, and credit lines aren’t likely to see major changes in interest rates, if at all. They’re typically at a fixed rate, and your payments aren’t likely to change. However, as spending power decreases due to inflation, you could find yourself with less cash on hand to make those payments after your living expenses are paid.
If you’re living with challenging amounts of unsecured debt, now might be a good time to refinance your mortgage to consolidate your debt into one low-interest payment.
Aggressively invest in passive income streams
When it’s getting harder to stretch a dollar, the best response is simple: have more dollars. Whether you’re employed by a corporation, self-employed, or an investor, your primary income source isn’t apt to increase to match the inflation rate. To keep up the lifestyle you’re accustomed to, investing in a passive income stream is an excellent way to shore up the way you’re accustomed to living. It may be purchasing a new business or doubling down on your existing business’s infrastructure, or perhaps it’s entering or expanding in real estate investments. Money you can earn with little to no time investment is a tool of the wealthy for a reason.
Consider a cash-out refinance to access as much equity as possible for your investment. Since it’s a situation of scale, the more you invest, the more you’re capable of earning back.
Lock in low rates
If interest rates climb, can you afford your payments at the next rate adjustment? If that’s even a glimmer of a concern, locking in now at some of the lowest historical rates can provide security down the road. That’s especially true for non-conventional products that feel the squeeze when it gets tougher to borrow money.
Even more attractive can be a 10-year interest-only mortgage with MBANC. For both refinances and new applications, an initial 10-year period is only the interest payment to alleviate any budgetary strain, followed by a 30-year fixed-rate mortgage term. It’s as if the approval holds over for the first ten years, offering amazing benefits if the rates jump.
Apply for a new mortgage or refinance at MBANC
Future-proof your mortgage with MBANC. With attractive mortgage options including interest-only loans, non-QM jumbo loans, and DSCR mortgages, you’ll find the financing you need to keep inflation at bay. Find out more or apply for a mortgage by contacting MBANC today.