What do the Federal Reserve's Interest Rate Hikes Mean for Consumers?
How will it affect your monthly expenses?
Inflation continues to run higher than expected, so the Federal Reserve raised its rate another 75bp today.
The rate hike will immediately increase loan costs for many consumer borrowings.
Higher rates mean higher payments for consumers with credit card debt as most credit cards have a variable rate while your 30-year fixed mortgage monthly payment won't change.
The best advice given higher rates is to pay off your highest-cost debt ASAP. If you have credit card debt, consider transferring to a 0% balance credit card.
Mortgage rates recently went above 7%, nearly twice as high as it was at the end of 2021.
How does this affect a monthly mortgage payment?
On a $300,000 loan, a 30-year, fixed-rate mortgage at the end of 2021 of 3.12% would have meant a monthly payment of about $1,285. Today’s rate of 7.12% brings the monthly payment to $2,038. That’s over $750 a month and more than $270,000 more over the lifetime of the loan.
Auto loans are also higher, as are car prices, so everything is getting more expensive. Thank you inflation.
On the flip side, if you have some money in the bank, you should be receiving more in interest income, but check your interest rate there too as many banks have been very slow to increase their savings rates. You should be easily getting over 2% on your hard-earned money now.
