5 ways higher interest rates might affect you
After years of record lows, the Federal Reserve has raised its target interest rate. That probably means changes for you, too, since the Fed’s rate helps determine the interest that consumers pay for loans and earn on savings. Here’s what might change.
Your mortgage payments may increase
If you have a fixed-rate mortgage, you don’t need to worry about the change. But if you have an adjustable-rate mortgage, your rate will likely increase and you’ll pay more as a result. Check with your lender to find out how much your payment will increase and if it benefits you to refinance into a fixed-rate loan. If you’re shopping for a mortgage, you may notice that rates are higher than they were a few weeks earlier.
Car loans could become more expensive
Low rates were great for car buyers, but a rate increase makes financing a car more expensive. Lease rates are likely to rise too.
Monthly payment on a 5-year, $25,000 loan:
@ 6% interest
Your credit card rate may go up
The annual percentage rate (APR) on most credit cards is variable. That means an increase in the target rate will likely drive up the interest you pay on your account balance, so it may take you longer to pay off your debt.
|Payoff time||21 years, 8 months||22 years, 8 months|
*Assumes minimum payment of interest +1% balance
Some student loan payments may cost more
The good news is interest rates on federal student loans are fixed, so those loans remain locked into their current rates. If you have private loans, however, your payments could increase. Check with your lender.
You may see higher returns on your savings
A target rate increase isn’t all bad news: One positive effect may be higher interest rates for CDs, money market and basic savings accounts. Although higher rates are good news for savers, don’t expect an immediate, dramatic change; rates tend to move gradually.