A Rise in Interest Rates and What That Means For Your Wallet

by | News, Tax Planning - Individual

Although the market rarely remains consistent for very long, the Federal Reserve’s decision to raise short-term interest rates by a quarter-point recently will come as a shock to many consumer wallets. Considering short-term effects, consumers will see a jump for annual credit card interest rates from 16.5% to 16.75%, as well as a rise in auto and home equity loans, and mortgage rates. Unfortunately though, the short-term effects may not be the cause for concern for consumers; experts seem to think that all signs are pointing to a rise in rates two more times before the year is out, which means the long-term effects could be more detrimental to your wallet. Below is an outline for how exactly the continuing rise in rates could affect your pockets.

Credit Cards

Although the quarter-point increase seems rather small, and rates are still low historically, some may see the effect more than others. If you follow what experts suggest and pay off your entire credit card bill each month, you will obviously be unaffected by any rate changes; however, if you are among the 40% of consumers who don’t pay off their entire bill each month, then you will end up paying an average of $42 more annually, and that number could jump to $85 annually if the Feds increase rates again as is projected.

Auto Loans

While auto loans will certainly see a slight increase from the raise in rates, consumers should not be too worried. Because borrowing rates for the auto industry are fairly low, consumers should only see about a $3 monthly increase on an average $25,000 auto loan.

Mortgages

Even though mortgage rates are not necessarily affected by changes in short-term interest rates, we are still seeing a rise in rates due to higher bond yields. Part of this is due to economic strengthening and potential increases in government borrowing under President Trump, and part is due to the Fed’s objective to tighten monetary policy. Before the election, rates for a 30-year fixed mortgage were at 3.75% compared to where they currently sit at 4.25%. And while the recent rise in interest rates may not be the cause, mortgages will continue to be more costly in the months ahead due to higher bond yields and tighter monetary policy, something that consumers will certainly feel since mortgages are so much larger than most other loans. It may take some time for mortgage rates to increase, but those using home equity lines of credit may feel the effects sooner, adding an average of $6.25 to monthly interest payments on a standard home equity balance.

So, no matter your stage in life, the chances are you will find yourself coughing up a few extra dollars in the coming months, whether that’s on your credit card bill, auto loan, mortgage, or a combination of the three.

Trump and the Housing Market: How His Plans Could Impact the Market in 2017

by | Accounting News, News, Resources, Tax, Tax Planning - Individual, Tax Preparation - Individual

“New Year, New Me.” This phrase is often uttered in the early parts of a new year as individuals prepare to make changes in their health, career, relationships or a variety of other personal traits. This phrase could ring true for 2017 as America prepares to inaugurate our 45th President and witnesses many political and policy shifts. One proposition that may enact some major adjustments is President-Elect Trump’s new tax plan. If you’d like to learn more about his tax proposals, check out our article highlighting major changes for individuals and businesses here. However, Trump’s plans have the potential to cause more shifts than just tax cuts; researchers believe it could have an impact on the housing market, specifically on mortgage interest deductions.

The President-Elect’s current plans include a rise in standard deductions for both individual filers and those filing jointly. Under current laws, many filers itemize their deductions rather than taking the standard deduction of $6,300 in order to receive additional tax breaks. But now, single filers could see a rise in exemption from $6,300 to $15,000 and joint filers could see a rise double that, at $30,000. Therefore, previously, those paying $10,000 in mortgage interest would have benefited from itemizing, but under Trump’s new proposals, in many cases, taxpayers would benefit more by taking the new standard deduction rather than itemizing. Although these propositions could simplify the filing process, they could also discourage individuals from buying. If homeowners no longer have an incentive to itemize and deduct their mortgage interest, then many may feel that renting is just as advantageous as buying.

Many economists would suggest that mortgage interest deduction does not actually motivate individuals to buy, but just encourages them to spend more or buy larger homes. However, limiting tax preferences for homeownership could cause a drop in the value and price of homes, a potential benefit to buyers, though a definite negative for sellers. One positive the market may have to look forward to is lower tax rates for many tax brackets, which has the potential to encourage individuals to spend more money on a variety of things, including housing. While the President-Elect’s tax changes could cause shifts to housing and homeownership, his proposals are ever changing and still being ironed out in many places. Current homeowners (who aren’t looking to sell in the next year) may have nothing to worry about, but future homeowners might consider what unfolds in the coming months before purchasing a home in 2017.