Mirranda Marquit isn't one to sit idle. When interest rates were at record lows several years ago, she and her husband refinanced their mortgage for a savings of $300 a month. They also bought a car three years ago and with their excellent credit, snagged a five-year auto loan at 1.99 percent.
Now, with interest rates likely to rise in the not-too-distant future, they are about to take action again. "We're thinking of replacing our second car, which is seven years old and paid off," says Marquit. "We plan to buy a new car before rates head higher. Now is a good time to lock in low rates."
After the financial crisis of 2008, the Federal Reserve set its short-term interest rate target near zero in the hopes that loans would be cheaper for borrowers and that the housing and stock markets would stabilize. "The conventional thought is that low interest rates encourage consumers to purchase more, which will eventually help economic growth," says Jeremy Crimmel, an economics instructor at La Salle University in Philadelphia.
For now, interest rates remain low and mortgage rates have actually dropped recently: The average rate for a 30-year fixed rate mortgage fell to 4.14 percent for the week ended May 22, the lowest rate since October.
The Fed intends to end its tapering program by the end of 2014 and could start raising rates in the middle of next year. The market is usually well ahead of the Fed, however, and rates will likely rise before the Fed starts raising its key rate, predicts JJ Feldman, managing director and partner of Miracle Mile Advisors, a registered investment advisory firm based in Los Angeles.
The days of 3-to-4 percent mortgages could be a distant memory before long; so here's what you should do ahead of a rising interest rate environment: