Fed's Latest Interest Rate Increase: What it Means for Mortgages & Credit Cards
The Federal Reserve increased its target interest rate by 0.25 percentage points for the tenth time in the past year. This is the fastest increase in interest rates since the early 1980s.
Although the Federal Reserve's interest rate hikes have helped to lower inflation, this also means that consumers will pay higher rates for borrowing money. Credit card rates, for example, have gone up by more than 20%. Home loan interest rates have also increased. However, historically, they remain low.
How Do Fed Rates Affect You?
The interest rate that the Federal Reserve sets affects how much you pay to borrow money and how much you can earn from saving money. When the Federal Reserve raises interest rates, it affects the interest rates that banks charge each other and therefore affects how much interest rates consumers pay on their loans and credit cards.
For example, since most credit cards have a variable interest rate, the credit card interest rate is directly affected by the Federal Reserve's benchmark rate. When the Federal Reserve raises its interest rate, the credit card interest rate also goes up within one or two billing cycles. This means people are now paying more interest on their credit card debt.
Similarly, adjustable-rate mortgages (ARM) and home equity lines of credit (HELOC) are also affected by the Federal Reserve's interest rate hikes.
Auto loans are also getting more expensive because of rising car prices and the increasing interest rates on new loans.
Federal student loan rates are fixed, so they aren't immediately affected by the Federal Reserve's interest rate hikes. However, private student loans usually have a variable interest rate that is tied to the benchmark rates. Therefore, private student loan borrowers will also pay more in interest as the Federal Reserve raises interest rates.
Key Takeaway for Potential Homebuyers
Despite the recent interest rate hikes by the Federal Reserve, buying a home can still be a great investment. It's important to remember that interest rates are still historically low, and although they have increased, they are expected to rise gradually over time.
Additionally, owning a home can provide long-term financial benefits and stability, including the potential for building equity and benefiting from appreciation. With careful planning and consideration of your financial situation, you can still achieve your dream of homeownership and enjoy the many benefits that come with it.