There’s growing speculation that the Federal Reserve might start lowering interest rates later this year or next.
While no one can precisely predict when, it’s useful to consider how a lower rate environment could influence financial decisions related to housing, estate planning, taxes, investing and retirement.
Housing
Housing is often the most noticeable area affected by falling rates. A rate drop isn’t a magic solution for your housing plans, but it is an opportunity to reset and gain flexibility.
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If mortgage rates decrease, mobility may increase, giving more families the freedom to buy, sell or relocate.
However, it’s important to keep in mind the broader financial implications of moving, such as property and casualty insurance costs and availability.
Adjustable-rate mortgages (ARMs) taken out in 2021 or 2022 are nearing reset, and although refinance rates may not be as low as they were then, they still appear more favorable than current levels.
For some households, tapping into home equity via a HELOC might also be a smart option if borrowing costs decline.
What you can do: Review your mortgage and debt. If you have an ARM or other variable-rate debt, think about refinancing to a fixed rate while rates are still historically favorable.
A lower rate could also make it a good time to consider using home equity through a HELOC for planned expenses or debt consolidation.
Estate planning
Estate planning becomes more relevant in a lower-rate environment. Strategies like grantor retained annuity trusts (GRATs) and intrafamily loans become more effective when the IRS’ Section 7520 rate drops.
It’s easier to shift appreciation out of an estate when the so-called
From Mortgages to Estates: Prepare for Lower Interest Rates
