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Here’s where the Fed’s latest rate hike will hit you hardest, and what you can do about it


'If you don't need it, don't buy it now': Here's where the Fed's latest rate hike will hit you hardest and what you can do about it

‘If you don’t need it, don’t buy it now’: Here’s where the Fed’s latest rate hike will hit you hardest and what you can do about it

After lowering interest rates to boost spending during the pandemic, the Federal Reserve would love to have you stop now — at least until inflation is under control.

The Fed just announced its sixth rate hike this year – and some economists predict future hikes will take the key rate above 5%, triggering a recession in 2023.

Fed federal funds rate increase equal to 75 basis points. That means the benchmark interest rate is currently between 3.75 and 4%, which doesn’t sound too bad.

But banks and lenders then add up their interest rates, which is when your credit starts to get expensive.

Mark Witte, professor of economics at Northwestern University. “Houses, cars, things of that nature.”

But there are ways to keep your expenses lower even when they seem out of your control.

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Mortgage

The average 30-year fixed-rate mortgage is at 6.95%twice as much as this time last year.

If you already own a home and have a fixed-rate mortgage, the money increase won’t affect you right away. But if you have a variable rate, you can see the difference. And if you’re looking to buy now, you’ve lost a significant amount of purchasing power.

“For every percentage increase in this percentage, fewer than half a million people qualify to buy a home,” said John Mallett, president of Main Street Mortgage, a mortgage brokerage in Ventura County, California. .

But not all hope is lost.

“It is starting to become a fair market where supply is working towards meeting demand,” Mallet said.

That gives potential buyers more options.

“People can, when they make an offer to buy a home, they can ask the seller to pay $10,000 in closing costs that will go towards buying at a discount. So you can make purchases at a discount. And it will make it easier for them to actually qualify for funding. “

Mallett suggested looking at a temporary rate cut, allowing buyers to pay a lower interest rate for the first few years before it rises to its usual rate.

Both the buyer and the seller can pay for the redemption, and it can be a one-time payment using mortgage points. One mortgage point equals 1% of your total loan amount. So, for example, with a $100,000 loan, one point would be $1,000. Sellers will sometimes use it to encourage sales.

If you already own a home and have a home equity line of credit, those rates will be affected by the Fed’s increase.

Credit

Americans have a lot of credit card debt – over 840 billion dollars valuable. And as the federal funds rate goes up, so does the interest on that debt.

The average interest rate on credit cards in October before the Fed raised rates was 22.21%.

It’s becoming more and more important to pay off your credit card balance, says Jim Droske, president of Illinois Credit Services, a credit counseling service outside of Chicago.

“That’s not always realistic for everyone,” he said. “But if they can, they should pay less so they don’t have a balance to charge interest.”

Another option is to call your credit card issuer and ask for a lower interest rate, says Droske.

“Sometimes those companies won’t bring it up. But if you ask, sometimes they will give you a better program.”

Read more: Suze Orman says this workplace taboo ‘is the system’s way of letting us down’ – here’s why decrying money can cost you

Car loan

Your car loans won’t escape interest rate hikes, either. In the first quarter of 2022, the national average interest rate on a 60-month car loan was 4.07%, according to Experianand it will continue to rise with the latest Fed announcement.

For the best auto loan rates, you’ll need to shop around and check with multiple financiers, but Droske says a good credit score is key.

“Your credit is extremely important when you take out a car loan,” he says. “Just because you’re approved for a loan doesn’t mean [it has] good terms, and they can be across the board – I mean, you can pay 19%, you can pay 9%. “

What you do end up paying is largely based on your credit score, he says. So while the benchmark interest rate will affect how much you pay, the way you handle your credit will have a huge impact on your interest rate.

Better credit will go a long way here

The good news is that you can do a lot to improve your credit score.

“In a… interest rate finance world, credit is king,” says Droske.

He said you should check your credit score for any discrepancy or error or Medical debt has not been written off. You should also pay off your credit balance as much as possible and see if you can get a higher credit limit.

But the best advice right now, may be the simplest.

“If you don’t need it, don’t buy it now,” says Droske. “People tend to go out and buy cars when they don’t need them and all that stuff is very expensive right now.”

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This article is for information only and should not be construed as advice. It is provided without warranty of any kind.

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