New Year, New Interest Rates?

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Get ready. Change is coming.

Since the market collapse in 2008, we’ve been riding a historic wave of low interest rates - the mortgage industry, companies, lenders, banks and above all consumers have benefited from these extremely low rates that have hovered just above zero for the past several years.

But we knew this couldn’t last forever.

American retail banks are now preparing for a rise in interest rates in the new year. Why now? After years of supporting the economic recovery, the Federal Reserve has announced that it is now “tapering” the money it’s putting into the U.S. economy. Since 2008, the Fed injected a lot of cash into the recovering economy to help stem the effects of the Great Recession. And when there’s more money on the market, it makes money cheaper to borrow - which means lower interest rates for everyone.

Now that we find ourselves 5 years after the market collapse, the Fed wants to move to a more regulated and routine interest rate policy. Their “tapering” means that less money on the marketplace, which means higher interest rates for all.

What does that mean for the average American consumer? It could have a big impact on your house or your investment portfolio.

If you’re on the market to buy a house, apply for a mortgage or refinance your home, you could be saying good-bye to those buyer-friendly interest rates of the past. When Fed announced that they would be tapering the money supply in 2014, mortgage rates shot up by a full percentage point in just one month. Homeowners and homebuyers alikes should be on the lookout for how this increase impacts their mortgage rates and should try to secure a lower rate now.

For investors, the short term may prove a bit rocky for returns on the stock market as companies and the economy as a whole adjusts to the tapering by the Fed. But analysts are encouraging investors to proceed with caution and look toward the longer term growth potential made possible by less involvement from the Federal Reserve in the marketplace. The short term will be rough for investors, but an increase in interest rates may benefit companies and consumers alike in the long-run.

About Stephanie Halligan

Stephanie is the founder of The Empowered Dollar, a site dedicated to helping millennials to fix their finances and find their stride in money and life. When she's not blogging, Stephanie is designing school curricula and online games to teach students about smart money management.

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