Fed rate hikes could shake up your wallet — Here’s how mortgages, credit cards, and more will be affected
The Federal Reserve said it would raise interest rates by a quarter of a percentage point at its Federal Open Meeting Committee (FOMC) on May 3 — the tenth rate increase since March 2022.
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From a consumer credit perspective, the impact of further rate hikes will likely continue to be felt by borrowers across a range of industries. This new hike means continued higher interest rates and, in turn, higher borrowing costs. Everything from credit cards, loans and mortgages will continue to be more expensive.
Concerning credit cards, the current national average APR is a record-high 20.22%, according to Ted Rossman, senior industry analyst at Creditcards.com. In turn, he said that it is crucial for consumers to pay down that debt as soon as possible as “these rates tend to be several multiples higher than most other forms of debt.”
Higher mortgage rates are also on the table, which generally translates into higher monthly payments for home buyers, as U.S. Bank explained.
“High mortgage rates have locked some Americans out of the housing market, but those that are still looking are disproportionately focused on newly built units since listings of existing homes are very low,” said Bill Adams, chief economist for Comerica Bank.
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What’s more, higher borrowing costs don’t just affect potential buyers — buyers who may be priced out of the market by rising mortgage rates. “It’s not just a question of an individual’s ability to buy a house, but how higher financing costs will affect builders in the development of new homes,” Rob Haworth, senior investment strategy director at U.S. Bank, said in an analysis. Haworth added that if financing proves to be too expensive, it could be a barrier to builders and may dampen the supply of new construction.
Finally, for student loans, not all borrowers are affected. For example, current federal student loan borrowers have a fixed rate, so they won’t see any changes. “A fixed interest rate stays the same for the life of your loan — the rate you get when you receive the loan is the same one you’ll have when you pay it off,” according to Sallie Mae.
However, if you need a new student loan, you may be affected. Interest rates on federal student loans change on July 1 and continue for all new loans made through June 30 of the following year, according to The College Investor. And according to The New York Times, these are based on the 10-year Treasury bond auction in May.
“Rates on those loans have already jumped: Borrowers with federal undergraduate loans disbursed after July 1 (and before July 1, 2023) will pay 4.99%, up from 3.73% for loans disbursed the year-earlier period,” The New York Times indicated.
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This article originally appeared on GOBankingRates.com: Fed Rate Hikes Could Shake Up Your Wallet — Here’s How Mortgages, Credit Cards, and More Will Be Affected