It looks like the Federal Reserve will announce its decision to lifts its short-term interest rate benchmark, on Wednesday. The increase will be about one quarter of a percent, but this could be just the beginning of a series of changes set to go off throughout the economy as the FED aims to continue pushing rates up on everything from small business loans, credit cards, and mortgages.
And what the FED does, banks will do also.
This means, though, that consumers who have credit card card or adjustable-rate mortgages or home equity lines of credit are those who will be most likely hit by the rate hike. According to Bankrate.com chief analyst Greg McBride notes that it is the “cumulative” effect that we have to watch, particularly since the Fed had already raised interests in the two previous December months (2016 and 2015).
McBride describes: “These interest rate hikes could add up to hundreds of dollars per month in extra fees for credit card, adjustable-rate mortgage and HELOC borrowers.”
Last week, thirty-year fixed mortgage rates hit a high for the year, already, when the averaged shot up to 4.21%, in anticipation of this very move by the FED. This is up from the same time last year, when the average thirty-year fixed mortgage rate was 3.68 percent.
This might seem daunting, at first, but NerdWallet mortgage analyst Tim Manni confides: “For consumers currently shopping for a mortgage to purchase a property or refinance an existing loan, shouldn’t feel like a real shock to the system since the rate move has already been ‘baked’ into the market.”
But experts also warn that should there be a third quarter-percent hike later this year (which is also highly anticipated), could result in the average monthly mortgage payment on a $200,000 home jumping up by roughly $30.
On the other hand, adjustable-rate mortgages are modified annually, so the next time the rate resets, we could see quite a massive change. Indeed, McBride comments, “Borrowers with adjustable rate mortgages that are seeing their rates reset should brace for higher payments. Because most ARMs only adjust once per year, the next rate reset could be a doozy if it encompasses 2 or 3 Fed hikes in the interim.”
These adjustable rates, he says, could rise as much as ¾ percent, which would increase the same metric as mentioned above (the monthly payment on a $200,000 mortgage) by as much as $84.