During its September meeting, the Federal Reserve raised interest rates by three-quarters of a percentage point for the third time this year, in an effort to cool soaring inflation. Americans have seen the effects on both sides of the household ledger: borrowers pay more, while savers benefit from higher yields.
Short-term loans, like credit card debt and adjustable-rate mortgages, are affected by the fed funds rate. Unlike fixed-rate mortgages, adjustable-rate mortgages have a floating interest rate that goes up and down with the market every month. Most of the time, changes in the federal funds rate don’t have a direct effect on long-term rates for fixed-rate mortgages.
The Fed’s actions have a big effect on credit card rates, so people with revolving debt can expect their rates to go up, usually within one or two billing cycles. Bankrate.com says that the average credit card rate was 18.1% as of September 14. This is up from about 16% in March, when the Fed started raising rates.
The 10-year Treasury rate is tied to fixed-rate mortgages. When this rate goes up, so does the popular 30-year fixed-rate mortgage, and vice versa
Mortgage rates have risen about three percentage points since the start of 2022, and last week a 30-year fixed-rate mortgage topped 6% for the first time since 2008.
Fixed mortgage rates are also affected by things like supply and demand. When there are too many people who want to get a mortgage, the rates go up. When business is slow, they usually lower prices to get more people to come in.
Rates are also affected by the rise in prices. Rates tend to go down when inflation is low. When prices go up, fixed mortgage rates go up, too.
Mortgage rates are going up, so keep an eye on the Fed and the economy and shop around to find a rate that fits your goals and budget.