Money / Financial Planning
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The Federal Reserve Board of Governors raised key interest rates 0.25% points on March 16 for the first time in three years, just as Russia’s widely condemned invasion of Ukraine upset global energy markets already weakened by the COVID-19 pandemic.
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In context, the benchmark interest rate increase comes only two years after the central bank slashed rates to near-zero to ease the economic pain caused by the COVID-19 pandemic.
On the national interest level, a healthy understanding of how rate increases will impact the economic future sectors is good to know. But knowing how these rate hikes will impact your own financial outlook and guide personal plans of action is downright important.
Everyone is experiencing the effects of soaring housing, food and energy prices and will continue to see those rise and fluctuate. But how will the Fed rate hike affect your personal finances on things like credit cards, mortgages, lines of credit and savings accounts? Let’s take a look.
As far as your credit cards are concerned, expect to see an influx of friendly e-mailouts and texts to your inboxes and phones over the next while because the new rate increases will affect your beloved plastics. According to CreditCards.com, credit cards average for the week of March 9 is 16.17% with an overall average hovering around 16%. Reward credit cards run a bit higher at a 17.51% average — up from 16.99% just a month ago. These will increase once the Fed announcement is made.
Mortgages and Home Equity Lines of Credit
Both adjustable- and fixed-rate mortgages, and home equity lines of credit (HELOC), will be affected by the benchmark rate hike, but only slightly. Adjustable-rate mortgages are modified after the first fixed-rate period ends (normally after five years). If that fixed period has stopped, expect to pay an additional $187 per month on a $300,000 adjustable mortgage, at the end of a year of five 0.25%-point Fed raises. The expected rate increase is a short-term borrowing strategy, and a fixed mortgage is a long-term financial project, so these rates won’t cause too much of a financial burden in the here and now. But the current fixed mortgage rate rose approximately one significant percentage point since November and currently sits right around 3.85%, according to home loan mortgages experts Freddie Mac. Accordingly, payment on a $300,000 mortgage will be around $1,719.
For home equity lines of credit, you should expect to pay an additional $6.00 per month from the quarter-point increase on a $30,000 line of credit at the average 3.96% average rate. </…….