Where are interest rates headed? This question is asked by every new borrower trying to decide when to lock their rate. Pundits say that short-term rates are headed higher since we are pretty sure the Federal Reserve will hike interest rates at least three times this year, with more to come in 2019. This will directly impact home-equity-line-of-credit (HELOC) rates and adjustable-rate mortgage (ARM) rates.

And what will mortgage rates do? I believe they will follow suit, not only because of the Fed’s actions but because the Treasury now must issue unprecedented amounts of new borrowings. Tax reform significantly reduced income and the new budget recently passed added huge new costs. The government must still operate, and to do so it must borrow. In 2018, the government will almost double its net borrowings and will most likely do the same in 2019 and 2020. As we all learned in Economics 101, when supply increases without a corresponding increase in demand, prices will drop. When Treasury prices drop, rates increase.

Therefore, it’s clear to me that we should expect mortgage rates to increase over the next several years.

Assuming the above is correct, how does that impact any actions we may take?

If you’re settled in your home with a 30-year fixed-rate mortgage and no HELOC, the movement in interest rates will likely have little, if any, impact on you. Your monthly payments are set and if you aren’t planning to sell your home, even a temporary decrease in values shouldn’t have a real impact. This is not meant to imply you won’t be impacted by overall economic conditions, but your house obligations should not increase.

However, if you fit into one of the categories below it would be prudent to seriously consider taking action sooner rather than later. Economic conditions point to higher rates and it could prove costly to not prepare for that.

1. 1. Resetting adjustable-rate mortgage. If you have an adjustable loan that has a rate that is either resetting soon or already has reset, a refinance may be appropriate. The reset rate is likely tied to short-term rates, and with three rate hikes expected this year and two more next year, your new rate could be close to 6 percent. If a refinance makes sense, don’t wait for higher rates. Even if you just want to extend your protection with a new seven-year adjustable-rate mortgage, it’s better to do it before rates go higher.
2. 2. HELOC. If you have a home equity line of credit you will see rates increase with every increase by the Fed. Your rate will gradually increase and again could get near 6 percent by 2019.
3. 3. If you need to do a cash-out refinance to pay off credit cards, pay other loans or just secure more funds for other future expenses, delaying this decision could be costly.

So, if you are considering refinancing, make the call to a lender to discuss your options as soon as possible. A wonderful feature of mortgages is that it’s not that expensive to refinance again if rates move lower. If my analysis above is wrong, and we in fact see a return to lower rates, you can refinance again.

While it’s true that a month ago you could have refinanced at a lower rate, if you wait for that rate to reappear you could possibly miss the chance to refinance. In taking action now you can protect yourself against future rate increases and the possibility that an approval you can obtain today may not be available if rates are higher.

By David Siegel

David Siegel is a home lending officer with Citibank in the Englewood and Clifton offices. He can be reached at 917-270-0593 or david.siegel@ citi.com.