Although the market rarely remains consistent for very long, the Federal Reserve’s decision to raise short-term interest rates by a quarter-point recently will come as a shock to many consumer wallets. Considering short-term effects, consumers will see a jump for annual credit card interest rates from 16.5% to 16.75%, as well as a rise in auto and home equity loans, and mortgage rates. Unfortunately though, the short-term effects may not be the cause for concern for consumers; experts seem to think that all signs are pointing to a rise in rates two more times before the year is out, which means the long-term effects could be more detrimental to your wallet. Below is an outline for how exactly the continuing rise in rates could affect your pockets.
Credit Cards
Although the quarter-point increase seems rather small, and rates are still low historically, some may see the effect more than others. If you follow what experts suggest and pay off your entire credit card bill each month, you will obviously be unaffected by any rate changes; however, if you are among the 40% of consumers who don’t pay off their entire bill each month, then you will end up paying an average of $42 more annually, and that number could jump to $85 annually if the Feds increase rates again as is projected.
Auto Loans
While auto loans will certainly see a slight increase from the raise in rates, consumers should not be too worried. Because borrowing rates for the auto industry are fairly low, consumers should only see about a $3 monthly increase on an average $25,000 auto loan.
Mortgages
Even though mortgage rates are not necessarily affected by changes in short-term interest rates, we are still seeing a rise in rates due to higher bond yields. Part of this is due to economic strengthening and potential increases in government borrowing under President Trump, and part is due to the Fed’s objective to tighten monetary policy. Before the election, rates for a 30-year fixed mortgage were at 3.75% compared to where they currently sit at 4.25%. And while the recent rise in interest rates may not be the cause, mortgages will continue to be more costly in the months ahead due to higher bond yields and tighter monetary policy, something that consumers will certainly feel since mortgages are so much larger than most other loans. It may take some time for mortgage rates to increase, but those using home equity lines of credit may feel the effects sooner, adding an average of $6.25 to monthly interest payments on a standard home equity balance.
So, no matter your stage in life, the chances are you will find yourself coughing up a few extra dollars in the coming months, whether that’s on your credit card bill, auto loan, mortgage, or a combination of the three.
