Credit-card users, home-equity borrowers and homeowners with adjustable-rate mortgages will likely see their monthly payments rise as the Federal Reserve’s interest rate hike Wednesday ripples across the economy.
All of those revolving loans have variable rates that go up or down based on the Fed’s benchmark short-term rate. which it raised by a quarter percentage point.
“If you’ve got variable-rate debt, it could make sense to speed up those payments or refinance that debt to a fixed rate loan,” says Liz Weston, a certified financial planner based in the Los Angeles area.
For consumers with 30-year mortgages and other longer-term loans, the effect of the Fed’s move on their pocketbooks will be far more gradual. But the central bank’s plan, announced Wednesday, to gradually reduce the size of its $4.5 trillion balance sheet, is also likely to nudge up mortgage rates over time as the assets flood the market, lowering their prices and increasing their rates.
Car buyers may be affected, too, though they’re now benefiting from a highly competitive market for auto loans that’s keeping borrowing costs low.
The Fed lifted its federal funds rate — which is what banks charge each other for overnight loans — by a quarter percentage point to a range of 1% to 1.25% following a similar March hike. A third quarter-point increase in 2017 is still expected later this year.
Here’s how the moves could affect consumers: