Rising interest rates could mean more costly repayments for borrowers
After the US Federal Reserve hiked interest rates to 0.75% last week, consumers were warned to expect a hike in the amount of interest they pay on loan repayments.
The lending rate was recently increased to the highest amount since 2008. The rate is still low; however, it is expected to continue to rise throughout the year to combat rising inflation.
Since the federal funds rate is not paid directly to consumers, this news primarily affects banks, as it directly impacts the interest rate they pay when they borrow from the Federal Reserve.
But, higher costs are often passed on to borrowers and this can influence interest rates on various types of consumer loans, making it a concern for struggling consumers.
For example, the rate consumers pay on auto loans often increases, and many auto lenders adjust the rates they offer their customers based on the federal funds rate.
It could also mean higher interest rates for credit cards and personal loans. Credit card debt is already at a recordcausing difficulties for borrowers to repay their debts.
Mortgage rates are generally unaffected by the fed funds rate as they are in line with the Treasury Department 10-year bond yield, but this has also increased due to rising inflation and forecasts of Fed action.
In fact, mortgage interest rates in the United States are now above 6% for the average 30-year fixed rate mortgage – although this varies depending on the borrower’s circumstances, such as their credit score, his income and the amount he has on account. Payment.
According Nerd Wallet, “Mortgage rates tend to go up and down in anticipation of Fed rate moves, which is a way of saying that the Fed increase was already ‘built in’ to mortgage rates. In other words, mortgage rates are more likely to rise or fall before Fed meetings than after Fed meetings. Over the next week or two, we probably won’t see big moves in mortgage rates like we did last week.