Last week, the Federal Reserve shared its latest plans to boost the economy amid the coronavirus pandemic. After a two-day policy meeting, projections show the Fed aims to keep interest rates near zero through at least 2021—and some officials signaled rates may stay low through 2023.
Such rock-bottom interest rates could have varying financial impacts on you, personally, depending on your goals. Here are some things to consider as you plan for low interest rate environment over the next few years.
Buying a home or refinancing may be cheaper
As The Wall Street Journal reports, experts say the Fed’s move may mean it will continue to be cheaper to buy a home or refinance your mortgage. Of course, the lowest mortgage interest rates won’t be available to all borrowers.
Even if you are able to score the best rates, you shouldn’t make such a big decision based on interest alone. Consider how the cost aligns with your other goals—like investing for retirement, paying off debt, or your kids’ college education.
If you can comfortably afford the mortgage payment, along with repairs and maintenance, the next few years could be a good opportunity to buy a home. But if the payment and expenses stretch your budget too much, renting may be a better choice.
Those planning to refinance their mortgage may want to act soon, though: Starting on December 1, Fannie Mae and Freddie Mac will start tacking on an extra 0.5% “adverse market fee” for most mortgage refinances.
Savings rates will stay low
Unfortunately, the latest news may be difficult for savers. Ken Tumin of DepositAccounts notes there may be a long period of very low interest rates—and it may be worse than what we saw from 2008-2015.
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He predicts we may see a few rare 2% CD offers in 2021 and 2022, so locking into a 1% CD may not be a good move. Instead, you may be better off keeping your cash in high-interest savings or trying a long-term CD ladder, which offers staggered maturity dates.
There are still some rewards checking accounts offering at least 2%, but there are downside to watch for. For example, there may be extra hoops to jump through to secure those rates, along with balance caps and interest cuts.
Student loan refinance opportunities
Although there is currently a pause on payments for most federal student loans through December 31, it may be tempting to jump at future refinance offers. But first, consider what you may be giving up if you pay off a federal loan with a private one. Federal student loans offer a number of benefits, including flexible repayment plans, student loan forgiveness, deferment, and refinance. But if you already have high-interest private loans, refinancing may be an easier decision.
