June 13, 2023

How Does the Rising Interest Rate Affect My Finances?

In the world of personal finance, one factor that can significantly impact your financial situation is the ever-changing interest rate. But what is an interest rate? An interest rate is the quantity of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan that is outstanding. Interest rates are determined by various economic factors and are subject to fluctuations as time moves forward. One common scenario we notice frequently is when the interest rates begin to rise. As we continue, we will explore how a rising interest rate can affect your finances and we will provide you with insights into how you will be able to navigate this consistently changing scenario in order to make a fair and informed financial decision. 

Increased Borrowing Costs and the Impacted Existing Loans: 

When interest rates rise, borrowing money becomes more challenging. This increase affects various types of loans, including mortgages, auto loans, and personal loans. For example, if you have an adjustable-rate mortgage, your monthly mortgage payments may increase when the interest rates rise, as the interest portion of the payment becomes more significant. Similarly, if you plan to purchase a car and require financing, a higher interest rate means you will end up paying more for the loan. Consequently, the cost of borrowing increases, potentially impacting your ability to afford new purchases or affecting your monthly budget.  

In addition, if you already have existing loans, such as student loans or credit card debt, a rising interest rate can have a direct impact on your repayment strategy. Credit cards often have variable interest rates, and if you carry a balance, a rise in interest rates will result in higher interest charges. Consequently, it becomes essential to reassess your debt repayment plan to accommodate these increased costs. Refinancing existing loans may be an option to consider, especially if it allows you to lock in a lower interest rate. 

If you are feeling unsure about borrowing money or consolidating loans, visit any of our six branches and connect with a Citizens First Bank loan officer for friendly, local loan assistance. You will leave knowing you made the right decision for consolidating your debt or financing your car, boat, or home improvement. 

Savings and Investments:  

While a rising interest rate may pose challenges for borrowers, it can be beneficial for savers. Financial institutions typically adjust their interest rates in response to market conditions, which means the interest earned on savings accounts, certificates of deposit (CDs), or other fixed-income investments may increase. This can be advantageous if you rely on interest income from your savings or if you are considering investing in fixed-income securities.  

At Citizens First Bank, we have opportunities that allow you to have a savings account as a place where you can store your money securely while earning interest. Unlike investment accounts, savings accounts are federally insured. Additionally, when you use a savings account, it creates a cushion between everyday spending money, which is typically kept in your checking account, and cash that’s meant for a later date, like an emergency fund or vacation savings. 

Real Estate Market: 

The real estate market is also closely tied to interest rates. When interest rates rise, it can affect both homebuyers and homeowners. Higher interest rates make mortgages more expensive, potentially reducing the purchasing power of prospective buyers. This can lead to a decrease in demand for housing, which may, in turn, affect property prices. Additionally, homeowners with adjustable-rate mortgages may experience an increase in their monthly mortgage payments, affecting their overall financial stability. It’s essential to consider these factors when evaluating your housing options or if you plan to refinance your current mortgage. Luckily, at Citizens First Bank we want to be your resource. We offer Rate Watch, which allows you to keep an eye on current rates via email. Let us do the work for you! Once the rate hits your goal, we’ll send you an email. Otherwise, you can sign up to get weekly updates on the rates for your selected preferences.   

 

A rising interest rate can have significant implications for your financial situation. It can impact borrowing costs, existing loans, savings, investments, and the real estate market. Being aware of these effects allows you to make informed decisions about your finances. We want to be a resource for you, because at Citizens First Bank, your needs come FIRST.  

Stop by One of Our Locations or Give Us a Call!

Centerville
W25042 Hwy 54/35
Centerville, WI 54661
Phone: (608) 539-5900

Holmen
1757 Temte St.
Holmen, WI 54636
Phone: (608) 394-3340

Sparta
835 West Wisconsin St.
Sparta, WI 54656
Phone: (608) 269-2126

Trempealeau
24050 Third Street
Trempealeau, WI 54661
Phone: (608) 534-6335

Viola
102 West Commercial St.
Viola, WI 54664
Phone: (608) 627-1491

Viroqua
101 South Main St.
Viroqua, WI 54665
Phone: (608) 637-3133

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