Advertisement
SKIP ADVERTISEMENT
What Higher Interest Rates Mean for Mortgages, Credit Cards and More
Savers benefit from higher rates, but borrowers have faced bigger bills on credit cards, student loans and other forms of debt.
- July 26, 2023
The Federal Reserve is expected to raise interest rates on Wednesday, the latest in a series of increases that have squeezed the budgets of debt-laden Americans, while rewarding those with money to stash in savings.
The Federal Reserve has already raised its benchmark rate, the federal funds rate, to a range of 5 to 5.25 percent to rein in inflation, which is showing signs of slowing. But prices remain elevated, leading the Fed to keep rates high for a prolonged period of time.
That means the cost of credit cards and mortgages may remain relatively high, making it more difficult for people who want to pay down debt — as well as those who want to take out new loans to renovate their kitchen or buy a new car.
“We were very spoiled for a while with low rates, and that lulled us into a false sense of security in terms of what the true cost of debt can be,” said Anna N’Jie-Konte, president of Re-Envision Wealth, a wealth management firm.
exist for people with good credit, but come with fees), or you might try negotiating a lower rate with your card issuer, said Matt Schulz, chief credit analyst at LendingTree. His research found that such a tactic often works.
Car loans
Higher loan rates have been dampening auto sales, particularly in the used-car market, because loans are more expensive and prices remain high, experts said. Qualifying for car loans has also become more challenging than it was a year ago.
“The vehicle market has challenges with affordability,” said Jonathan Smoke, chief economist at Cox Automotive, a market research firm.
close to 6 percent in February before drifting back up again to 6.78 percent as of July 20, according to Freddie Mac. The average rate for an identical loan was 5 percent the same week in 2022.
Other home loans are more closely tethered to the Fed’s moves. Home-equity lines of credit and adjustable-rate mortgages — which each carry variable interest rates — generally rise within two billing cycles after a change in the Fed’s rates. The average rate on a home-equity loan was 8.47 percent as of July 19, according to Bankrate.com, up from 5 percent a year ago.