interest rates

The target federal funds rate has been at the historically low benchmark of 0.0%–0.25% since December 2008, when the Federal Open Market Committee (FOMC) reduced the rate in response to the great recession. Now, with the economy and employment rebounding, most agree that rates are likely to rise. Are you properly protected against rising rates?

Here are a few suggestions you may want to consider:

Plan ahead to pay down or pay off variable-interest-rate debt balances. When interest rates rise, your interest payments on variable rate loans will increase, or a larger portion of each payment will go to interest. Talk to your advisor about establishing a liquidity management account. The easiest way to protect yourself is to be in a position to pay down your outstanding balances. This applies to any variable loan that is tied to an index like Prime or LIBOR.

Consider refinancing variable-rate debt with fixed-rate debt. While it may not be feasible in all circumstances, there may be fixed-rate products available to refinance variable-rate debt, such as residential mortgages and commercial real estate loans.

If you have an interest-only home equity line of credit, consider refinancing with a total line of credit. City National Bank’s Total Line of Credit, offered to current account holders, provides the ability to term out interim advances during the 10-year draw period at a fixed rate.

An interest rate swap—a sophisticated derivative product—is not suitable for all borrowers. However, if you are financially sophisticated, and if your loan is set up to attract a swap, you may be able to hedge your rate exposure by entering into an interest rate swap agreement. 

Take inventory of your credit profile, and evaluate your options for paying down variable-rate debt or applying for fixed-rate debt, before rates rise.

Connect with a Private Client Advisor or Private Banker today at (800) 773-7100.

City National Bank, as a matter of policy, does not give tax, accounting, regulatory or legal advice. The effectiveness of the strategies presented in this document will depend on the unique characteristics of your situation and on a number of complex factors. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations. The strategies presented in this document were not intended to be used, and cannot be used for the purpose of avoiding any tax penalties that may be imposed. The strategies were not written to support the promotion or marketing to another person of any transaction or matter addressed. Before implementation, you should consult with your other advisors on the tax, accounting and legal implications of the proposed strategies based on your particular circumstances.