By Bryan Stiefvater, BoJH Chief Credit Officer
Even if you closely follow interest rates, the increases over the past several months have been quite dramatic for both short- and long-term interest rates. With the recent Federal Reserve meeting, the ‘prime’ rate is now 4.75% and further increases seem all but guaranteed as the Fed attempts to temper inflation. As we’ve all enjoyed historically low rates for several years, we want to offer a few reminders about navigating the new rate reality.
- Review all your current rates: Determine the rate you’re paying on all your credit facilities and make sure you know which have a variable rate and which are fixed. For the variable rate loans, be aware of how the rate is calculated and how often it changes – credit cards and home equity lines will typically adjust monthly or even daily so you’re exposed to the higher rates quickly; many adjustable-rate mortgages have an initial fixed-rate, so they still may be in their fixed-rate period and won’t adjust for several years (however, this isn’t always the case). Knowing these rates will help you understand what impact the increasing rates might have on your finances.
- Consider paying off variable rates first: If you’re paying ahead on a fixed-rate loan, such as an auto loan or your home mortgage, but carrying a balance on a variable rate facility, consider redirecting the excess to the variable-rate balance rather than the fixed. While you may be working to get that auto loan paid off ahead of schedule, you’re likely much better of paying off that credit card!
- Fixed rates for the future: If you’re taking on new debt with a variable rate, inquire as to the possibility of a fixed rate. Even if the initial rate is a little higher, having the fixed rate may be a better option. If there isn’t a fixed-rate option, be sure to understand how, when, and by how much the rate can adjust and use a stressed rate when calculating how the payment could impact your budget.
There’s no easy answer to dealing with the rising rates, but these few simple steps will help you navigate this new rate environment.
About Bryan Stiefvater | Chief Credit Officer
Stiefvater is the Chief Credit Officer for Bank of Jackson Hole, overseeing loan originations and the institution’s loan portfolio. He has spent his tenured career between Colorado and Wyoming at a variety of banking institutions. Prior to Bank of Jackson Hole, Stiefvater was at Wells Fargo in a similar role as Portfolio Manager. He is a Wyoming native who grew up between Laramie and Cheyenne and holds a degree from the University of Wyoming. He has been in the Jackson area for eight years with his wife and two children.