3 things that will get more expensive after the historic Fed rate hike

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Some of your regular, daily payments are about to get more expensive.

The Federal Reserve raised the cost of borrowing by raising its federal funds rate by half a percent on Wednesday, its biggest increase since 2000. The rate is now in a range of 0.75 to 1%, the central bank predicting a total of about six more hikes by the end of the year. It is expected increase to 3%-3.25% by the end of the year.

By raising its federal funds rate, the Fed makes it more expensive to borrow money. This is intended to reduce inflation: The cost of goods in the United States climbed 8.5% year-over-year, according to the most recent data from the Bureau of Labor’s Consumer Price Index. Typically, the central bank’s annual inflation target rate is about 2%.

With an interest rate hike of 50 basis points, you can expect higher costs for:

Credit card

Your credit card interest rate will likely increase slightly within a few billing cycles. The magnitude of this increase can vary depending on your credit score and your credit card provider.

A 1% increase in interest rates will probably only add a few dollars to your monthly interest payments on a few thousand dollars of unpaid debt. Current average interest rates are close to 16%, but could reach 18.5% by the end of the year, according to Tedd Rossman, senior industry analyst at CreditCards.com.

Mortgages

Mortgage interest rates are calculated based on several factors, such as inflation and housing supply, but they are also indirectly affected by the federal funds rate, which influences how much banks pay to borrow money. the money. When this rate rises, interest on variable rate mortgages tends to follow.

“All signs point to higher rates,” said Greg McBride, chief financial analyst at Bankrate, in a report Sunday before the rate hike. “In May, the benchmark 30-year fixed mortgage rate will be between 5.5% and 5.75% for the first time since 2009, and even 15-year fixed rates will climb to around 4.75% at 5%.

Interest rates on 30-year mortgages have already increased by nearly 2% over the past year, which equates to hundreds of dollars in additional monthly costs. Add to that the Fed’s new rate hike, and you’ll soon be paying even more to own a home — assuming, of course, you don’t have a fixed-rate mortgage.

Other loans

the The federal funds rate is used to calculate the lowest interest rate offered for loans, known as the prime rate. Any loan linked to the prime rate, known as an adjustable rate loan, will likely have a slight increase in interest rates.

The magnitude of this increase will vary depending on your credit score and the terms of your loan. This could affect your financing for a new car, personal loans or home equity lines of credit. Variable rate student loans also tend to rise with the federal funds rate – although technically they are not directly related.

If you currently have a fixed rate loan, your payments will not change. If you have an adjustable rate loan, you should take the time to review its terms, says Jacob Channel, senior economics analyst at LendingTree: “The last thing you want is to think, ‘Oh, I have a few months before my rate is going up,” and I realize that the rate hike will happen much sooner.”

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