The Federal Reserve delivered.
As anticipated, the two-day meeting finished with a sweeping increase in interest rates across all sectors of the economy. The Federal Reserve’s rate, which serves as a benchmark for many lending entities and financial institutions in rolling out their various services, is raised by a quarter point as the meeting concluded Thursday.
How will this impact the average US consumer?
The current Fed rate, which is up by a single percentage point for the first time since 2008, will not have a uniform impact on everything, of course. Credit card users will be the ones to feel the hike first, as well as those who are set to borrow against their home equity, and those holding mortgages with adjustable rates.
The hike won’t have much impact on the student and auto loan sectors, however.
Primarily, those consumers with debts having variable rates will feel the most impact. Financial experts advise these consumers to either pay off the debts faster so as not to get burdened by rising interest rates by the time the loans reset and refinance into a more stable, fixed-rate option.
The hike is the second in 2017, with a third one expected later in the year.
Breaking down impact
Your credit card loans are set to get more expensive as its rates are based on the prime rate, directly linked to the Fed rate. For the average $5,000 balance, the hike would mean an additional $175 in total interest.
For HELOCs, an average credit line worth $30000 can have an additional monthly payment of $6, while for adjustable rate mortgages which are facing a reset – and an anticipated higher rate by then, could face almost a hundred dollar increase for an average mortgage amount of $200000.
Other long-term interest rates such as your 30-year FRM will be indirectly affected by the hike. If you’ve locked in before the meeting then you shouldn’t have anything to worry about. Otherwise, it may be wiser to lock in sooner than later.
For your auto loan, the current rate increase could mean an additional $9 more in your monthly payments. That’s for an average car loan of $25000.
Meanwhile, your savings will not have much to do with the rate hike.