By: VyStar Interim President/CEO, Kathy Bonaventura
As VyStar transitions into a new phase following the retirement of our President/CEO Terry West, it is an honor to serve as your Interim President/CEO. Having served VyStar in the lending area for over 25 years, I would like to take this opportunity to review a topic that affects all of us: interest rate changes.
The rise and fall of interest rates can be hard to predict, so it is important to be aware of what these fluctuations can mean for you.
The Federal Reserve’s current interest rate policy began late last year when they increased the federal funds rate for the first time since 2006. Credit unions and banks use the federal funds rate as a part of their overall program when setting rates for a number of products. The good news is that, even though rates may continue to incrementally rise, interest rates are still near historic lows. If you are planning to obtain a loan in the near future—such as a mortgage or a car loan—now is a good time to become familiar with how rate changes can impact you.
Variable-rate products—such as adjustable-rate mortgages (ARMs), Home Equity Lines of Credit (HELOCs) and credit cards—are some types of loans that may be impacted by short-term interest rate increases. Typically, they are tied to an index, such as the Prime Rate or London Interbank Offered Rate (LIBOR), which react more quickly when rates change. For example, if you have an ARM, your monthly payment will adjust at certain intervals, which are outlined in your note. Many ARMs begin with a period of time during which the interest rate is fixed; after that period, the interest rate may begin to adjust annually based on the rate environment.
It is important to understand the terms of your mortgage and make sure you are prepared when rates change. Refinancing an ARM to a fixed-rate mortgage may make sense; however, you should consider several factors such as the current fixed rate available in the marketplace, closing costs and how long you plan to stay in your home. Consult with a mortgage professional before you make that decision.
Credit cards are a great financial resource for many of us, and it is critical that we use them wisely. That is particularly true when interest rates are on the rise. If you have large credit card balances and you are only able to make the minimum payment each month, a rate increase could worsen the problem. There are options if you find yourself in this scenario, such as consolidating or transferring your credit card balances to a card with a lower interest rate.
If you are in the market for a new mortgage or auto loan, you can expect that those rates will rise slightly as the interest rate environment changes; however, overall rates remain low. Homeowners and auto owners could be impacted if they decide to refinance their existing loans or obtain a home equity loan in a rising rate environment. Some homeowners may decide to remain in their existing homes and refinance their mortgage to extract equity from their homes for home improvement projects. VyStar offers several options to help borrowers when they are purchasing a home, such as minimum down payment loans and closing cost assistance.
No matter how high or low interest rates are at a given moment, the most important thing to remember is: The best time to borrow is when you are financially ready. Rather than allowing interest rates to be the deciding factor when making a large purchase, first make sure that your credit is in good standing. This could, in turn, help you receive one of the better loan rates available at the time. In addition to ensuring that you have the financial means to support your down payment and your monthly loan installments, it is also good practice to have some savings reserved in case of an emergency.
VyStar can help your family realize the dream of homeownership or the purchase of a new car. We have experts available who will guide you through our full range of competitively priced loans.
If you need help financially preparing for your next loan, have questions about interest rate changes, or would like to learn more about VyStar’s many programs and services that could help you make that big purchase, we are here to help. Please stop by a VyStar branch near you or contact us at (904) 777-6000 or 1 (800) 445-6289, option 3, to speak with one of our loan specialists.
Thank you for your membership, and we look forward to helping you achieve your financial goals both in the present and in the future.
VyStar Credit Union