Federal Reserve Increases Interest Rates a Second Time in 3 Months
The Federal Reserve raised its key short-term interest rate today by 0.25% resulting in a new target range of 0.75% to 1%. This was the second time rates have increased in the past three months and the third time rates have increased since December 2015. The central bank indicated that the strengthening job market and rising prices are signs that employment rates and inflation values are nearing ideal target ranges. Accordingly, the economy is showing signs that it does not need the aid of super-low interest rates to spur growth. Two additional rate hikes are expected before the end of 2017.
How Does this Affect You?
Mortgage Rates - Rates increased prior to the official announcement. The 30-year fixed rate is now hovering around 4.375% to 4.5%. Expect mortgage rates to continues to climb this year based on the Fed indicating that they'll likely have two additional rate hikes. They're hinting that they'll be raising rates three more times next year.
Did you know? For every 1% increase in interest rates on a 30 year fixed rate loan, home buyers lose about 10% of their purchasing power. For example; If the interest rate on a 30 year fixed rate loan is 4.5% and you're buying a $1M house, you'd need to down to about a $900k house if the rates went up to 5.5% (in order to maintain the same monthly mortgage payment).
Home Equity - The interest rate on this line of credit is tied to the prime rate which increases in-line with the Federal short-term rate. The rate hike will be reflected in your interest due within 30 days or by the second billing cycle after today's announcement.
Credit Cards - Most creditors increase APR on the first day of the first billing period after the hike. This means you could see the effects of the rate hike reflected in your credit card bill by your next statement.
Auto Loans - Rate on auto loans have been slowly increasing over the past year. Although they typically are slower to reflect Fed rate hikes. Expect to see some degree of interest rate increase in the next 30-90 days.