What Does a Rate Change Mean for Me?

For only the second time since the financial crisis began, the Federal Reserve has agreed to raise interest rates via the Federal Funds Rate. But what does that mean for consumers, especially for borrowers that work with hard money lenders like Loan Ranger Capital? In today’s post, I’d like to cover what this rate increase will mean for the broader marketplace and what it will mean for Loan Ranger Capital.

The Economy

A rate increase is one of the many tools the Federal Reserve uses to control the growth in the US economy. If the economy is growing too quickly and inflation becomes a worry, the Fed (as the Federal Reserve is commonly called) will bump up its Federal Funds Rate. This is the rate at which banks can borrow money from each other, and which interest rates for financial products like credit cards, savings accounts, student loans, etc. are based off. While the Federal Funds Rate does not explicitly change rates on these products; banks and other financial institutions have a strong incentive to adjust their rates on them to keep them profitable. This has a ripple effect throughout the economy, and changes the way the average consumer responses to their own debt obligations.

In a similar, vein, an interest rate decrease is a tool the Fed deploys to promote growth in the US economy. This is a tool that consumers have been feeling the most this past decade, with mortgage rates and other debt instruments at rock bottom. The best example of this loose monetary policy is reflected in our national debt. The federal government can borrow funds for next to nothing with interest rates where they are. Once rates start to creep up, subsequent borrowing to fund the government becomes more expensive, not to mention paying off the debt already outstanding.

All in all, the Federal Funds Rate is a vital tool the Federal Reserve has at its disposal. It gives the Fed the ability to head off potential downturns caused by either rapid inflation (economy is too hot), or sluggish lending practices (economy is too cold). Although it may hurt if you are applying for a new mortgage, overall this effect should benefit the average American, as any upcoming recession’s effects can be blunted.

Loan Ranger Capital

What does a gradually rising Federal Funds Rate mean for Loan Ranger Capital, and more importantly, your work with us? The Fed’s raising of interest rates will have a very limited effect on the work we do here. Our rates for hard money loans are tied not to the Federal Funds Rate, but to the market rate for lending, so we have no incentive to adjust them as the Fed moves. With a stable interest rate, our borrowers will know what to expect every time they come to us to funding. That stability gives peace of mind when planning a project budget, and can save time when it is of the essence.

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