Here’s what the Fed’s rate hike means for your wallet

The Federal Reserve raised interest rates for the first time since 2018 at its March meeting. Here’s what that means for consumers. (iStock)

Last week, the Federal Reserve increased the federal funds rate for the first time since 2018, increasing it by 25 basis points. This quarter-point increase has brought its target range to 0.25% to 0.5%, and consumers will soon start to feel the effects.

The federal funds rate affects the rate at which banks lend money to each other. When the Federal Open Market Committee (FOMC) raises rates, it forces banks to raise their overnight lending rates. These higher borrowing costs are then passed on to the consumer in the form of higher interest rates on credit cards, mortgages, student loans, personal loans, car loans and many more.

For some loans, like personal or private student loans that have a fixed interest rate for the term of the loan, this change will only affect those taking out a new loan or wanting to refinance. But for other types of loans, borrowers might start seeing changes immediately, including increases in their monthly payments.

The Federal Reserve currently expects it to raise rates multiple times this year and into 2023. If you’re looking to reduce your monthly expenses before interest rates rise even further, consider refinancing your private student loans. Visit Credible to find your personalized rate today.

FEDERAL RESERVE RAISES INTEREST RATES: WHAT TO DO NOW

How will mortgages be affected by the Fed’s rate hike?

For many types of mortgages, such as the 30-year fixed rate mortgage or the 15-year mortgage, the monthly payments will remain unchanged. In fact, only new borrowers or owners wishing to refinance will be affected by the rise in interest rates.

However, other mortgage holders, such as those with an adjustable rate mortgage (ARM), could see their payments increase. For example, a five-year ARM will have a fixed interest rate for five years. After that, the rate will fluctuate with the mid-market rate. If the rates increase, the owner’s monthly payment will also increase.

If you want to lock in your mortgage rate ahead of future Fed increases, you might consider refinancing your home loan. Visit Credible to compare multiple mortgage lenders at once and choose the one with the best interest rate for you.

Credit cards might charge higher rates

Credit card users may see increased interest on their cards. Most credit cards have a variable annual percentage rate (APR), which changes depending on the direction of interest rates. Consumers receive an interest rate such as “prime plus 15%”, which means their rate will be whatever the prime rate is at the time, plus an additional 15%.

But even credit card users who don’t have variable APRs could still see their rates go up. Credit card companies can increase rates for users who have had their card for at least 12 months, but must provide at least 45 days written notice.

If you want to compare your credit card options and make sure you have the best card for you, visit Credible to compare cards without affecting your credit score.

INFLATION REACHES ANOTHER 40-YEAR HIGH IN FEBRUARY

Fed hikes rates to fight rising inflation

The Federal Reserve announced that it was raising its rates to combat rising inflation, which is currently at a level 40 years tall 7.9% per year. Fed officials explained that several more rate hikes will likely be warranted in order to calm inflation as it tends to rise.

In one statement after the meetingthe FOMC cited “supply and demand imbalances” related to the COVID-19 pandemic as the cause of inflation, in addition to “rising energy prices and broader pressures on price”.

Although inflation is expected to remain strong for the remainder of 2022, the central bank’s monetary policy shift may begin to slowly reduce inflation. Despite higher interest rates, this could be good news for consumers’ wallets as they seek relief among other day-to-day expenses.

If you are looking for a way to pay off high interest debt or reduce your monthly expenses, you may consider taking out a personal loan at a lower interest rate. Contact Credible to speak with a loan expert and get all your questions answered.

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