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![]() ![]() That said, in general, the Federal Reserve (or, more specifically, the Federal Open Market Committee) attempts to control interest rates by adjusting the federal funds rate. Who controls interest rates?Īt risk of oversimplifying, we’ll start by acknowledging that U.S. Depending on the situation, you may be the one paying the interest rate (that is, you’re borrowing money from someone or some financial institution) or you may be the one earning interest (that is, you’re lending your money to someone or some financial institution). It’s almost a certainty that you are or at some point will be involved in a financial deal that involves interest. With a balance of $300,000 on the mortgage, your monthly interest payment would be $1,250 ((300,000 x 0.05)/12). ![]() For this example, we’ll assume the interest rate is 5%. Let’s say you purchase a new home and take out a mortgage for $300,000. Mortgage interest rates are a well-known example. The amount of interest they charge is determined by the interest rate. To minimize this risk exposure and gain something from loaning their money, lenders charge interest. When lending money, there’s always some probability or risk that the borrower won’t actually repay it. In a typical financing deal, there’s a borrower (someone who needs access to cash) and a lender (someone who already has access to cash). Put simply, interest rates are the cost of borrowing money. These increases come after more than a decade of low interest rates and expansionary economic policies geared toward spurring growth.ĭuring this time of economic uncertainty (Will inflation finally begin to slow? Will pandemic supply-chain issues be resolved? Will labor shortages stabilize? Will housing prices come down?), it’s reasonable to wonder: How will higher interest rates affect me? Here’s what you need to know about interest rates and how they could impact your financial plan. In fact, they’ve already been raised once. we know that interest rates will go up multiple times this year. Among their many impacts in our economy, interest rates are one of the tools used by the federal government to help combat inflation.īased on reports and announcements from the Federal Reserve - also known as the central bank of the U.S. ![]() With inflation on the rise, there’s a lot of focus on interest rates. ![]()
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