Prof. Stacy, The Money Teacher

For the first time since 2018, the Federal Reserve recently raised interest rates by 0.25% in an attempt to slow spending and stabilize prices. What will these interest rate increases mean to the average US family? There will be effects on both “new” debt and on “existing” debt.

The Effect On New Debt

Higher interest rates will raise the cost of borrowing for individuals and companies (including small businesses). Specifically, new home mortgage rates, rates for new refinancing loans, and rates for new student loans will increase.

New mortgages: On the same day that the Federal Reserve announced the increased rate, the 30-year mortgage interest rate increased to 4.46% versus 4.11% the previous week’s rate (Bankrate) or an extra $21 per month per $100,000 borrowed. According to CNBC, the average new mortgage in February 2022 was $453,000. For that mortgage, the monthly payment will have increased by $92. New refinancing loans follow the pattern of new home mortgage rates.

New interest rates for student loans will be announced soon.

 

Effect on existing debt

Rising interest rates will also increase payments on existing variable-rate debt such as home equity lines of credit (HELOCs) and credit cards.

And, because the Federal Reserve has indicated it intends to raise rates by (at least) a quarter of a percent six more times this year (totaling 1.75% this year), these effects will continue to increase during 2022.

 
 

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