Mortgage points may help homebuyers lower monthly costs amid high interest rates. How to know if this strategy is right for you

As interest rates have climbed, homebuyers have been confronted with higher borrowing costs.

That has led more home purchasers to opt for one strategy, purchasing mortgage points, as a way to defray higher monthly payments.

Mortgage points let buyers pay an upfront fee to lower the interest rate on their loans. In some cases, sellers will help to buy down rates to help ease transaction costs.

Almost 45% of conventional primary home borrowers bought mortgage points in 2022 to reduce their monthly mortgage payments, a trend that has continued into this year, according to recent research from Zillow.

That is up from 29.6% in 2021, when interest rates were lower.

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The 30-year fixed-rate mortgage currently averages 6.7% according to Freddie Mac, up from 5.8% a year ago. The 15-year fixed-rate mortgage now averages about 6%, up from 4.8% a year ago.

This week, the Federal Reserve decided to pause the interest rate hikes it has put in place to combat high inflation.

As rates stay higher, those who are in the market for a home lose purchasing power. Some experts have urged buyers to consider purchasing mortgage points to lower their monthly payments.

Stephanie Grubbs, a licensed real estate agent at the Zweben team at Douglas Elliman Real Estate in New York, recently did exactly that when one of her clients lowered their asking price.

“This fabulous apartment just had a price reduction, which means you can use those savings to buy down your rate,” Grubbs wrote in the updated ad.

Grubbs, a former financial advisor, said her firm started bringing up the strategy more when the Fed started hiking interest rates.

“In an effort to try to be creative, we talk to sellers about offering to buy down a rate,” Grubbs said.

Other experts say buyers purchasing mortgage points can be a great strategy for the right situation.

That goes particularly if a buyer can afford the extra upfront costs.

Being able to lower that monthly payment can really help give some more wiggle room in people’s budgets and help them reach affordability.

Nicole Bachaud

senior economist at Zillow

Mortgage points refer to the percentage amount of the loan. Typically, one point is worth 1% of the loan value, according to Nicole Bachaud, senior economist at Zillow.

If the loan value is $300,000, one point would typically cost $3,000 and lower the interest rate 0.25 percentage points, she said.

“Being able to lower that monthly payment can really help give some more wiggle room in people’s budgets and help them reach affordability,” Bachaud said.

In addition to higher upfront costs, home buyers should also weigh other factors before buying mortgage points.

Set a timeline for living in your new home

“For most instances, it is definitely a considerable cost savings to be able to buy down on points,” said Kamila Elliott, a certified financial planner and co-founder and CEO of Collective Wealth Partners, a boutique advisory firm in Atlanta. Elliott is also a member of the CNBC Financial Advisor Council.

However, if you buy points and then refinance, that will not allow enough time for your upfront payment to appreciate, Elliott said.

Another important consideration is your timeline for how long you plan to live in the home.

With rates and home prices high, that means closing costs are also elevated, Elliott said.

Consequently, if you move before three to five years, you may take a bigger financial hit, she said.

“There could be a huge loss if you can’t stay in that property long enough to have those expenses amortized out over the time that you’re there,” Elliott said.

Consider other alternatives

If you have extra money when buying a home, you may instead choose to increase the size of your down payment.

This can be advantageous because it creates more equity in the home, Bachaud noted. It may also lower your monthly payments.

If that extra money is enough to bring your down payment to 20% of the home purchase price, that would eliminate the need for private mortgage insurance, which adds to monthly costs for mortgage borrowers who put down less than those sums.

However, you may see more of an effect on your monthly expenses by buying points rather than increasing your down payment, Elliott said.

It costs less for a seller to buy down somebody’s mortgage than it does for them to take a price reduction.

Stephanie Grubbs

licensed real estate agent at Douglas Elliman Real Estate

A point may cost $3,000 to $4,000, for example. But putting those sums toward a down payment likely will not make much of a difference on your monthly costs, Elliott said.

If you want to make sure your mortgage payment doesn’t exceed one-third of your take home income, then paying down on points could be the better option, she said.

In some situations, a seller may offer to buy down the rate, a concession to help offset costs for buyers. Grubbs said she has discussed employing this strategy with clients in her real estate practice.

“It costs less for a seller to buy down somebody’s mortgage than it does for them to take a price reduction,” Grubbs said.

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Homebuyers may want to consider pursuing a 2-1 buydown, a mortgage that provides a low interest rate for the first year, a slightly higher rate in the second year and a full rate for the following years.

A 2-1 buydown may also sometimes be seller financed, according to Bachaud.

Talking to a loan officer can help you decide the best decision for your situation, Bachaud said.

Factor in the unknowns

How well any homebuying strategy fares in the long run depends on one big unknown: how the Federal Reserve will handle interest rates going forward.

The latest projections from the central bank call for two more rate hikes this year.

While today’s rates feel high, Elliott said she often reminds people that homebuyers in the 1980s would have loved to have had access to 6% mortgage rates.

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The risky options for Main Street cash, credit, when banks say no to lending

Under current banking and credit conditions, many small businesses are likely being bombarded with pitches for online loans and cash advances. Some of these offers, however, could lead the business down — or further down — the rabbit hole of debt.

Certainly, online lending platforms can make it easier for small businesses to obtain financing, and they serve a key need in a market that has long struggled to get the attention of traditional banks. The recent CNBC|Momentive Small Business Survey found owners saying they had lost confidence in banks as a result of the regional banking crisis, and even more to the point, almost half said it isn’t easy for them to access capital to operate. The debt ceiling fight has introduced another element of economic uncertainty that has small business owners on edge.

Compared with a bank loan, online loan providers typically require fewer hoops for borrowers to go through, more relaxed underwriting standards and a quicker turnaround. The challenge is finding a reputable provider, at a reasonable cost, and with terms that won’t undermine the business’s long-term prospects.

“Some people say you shouldn’t have a credit card, but it’s not the credit card. It’s how you use the credit card. The same is true with online financing,” said Nicole Davis, founder and principal of Butler-Davis Tax & Accounting LLC. 

Here are five things small businesses need to know when considering an online financing offer:

Online loans 

An online loan can be used to fund various business expenses. It’s generally easier to apply and qualify for than a traditional bank loan, and options may exist even if you have less-than-stellar credit. The loan amount can vary, with many ranging between $100,000 and $500,000. Some online loans are 12 months or less, but longer-term options may also be available. These loans generally carry higher interest rates than might be available from a traditional bank or the U.S. Small Business Administration, with annual percentage rates often in the range of 6% to 99%, according to a NerdWallet analysis. Terms are based on the owner’s credit profile, how long the business has been operating, its financials and the amount borrowed, said Travis Miskowitz, a partner in the CFO advisory services group at the accounting and advisory firm Wiss. 

Pay attention to fees that could make the loan more costly, Miskowitz said. These could include an application fee, a good-standing fee to see whether the business is in compliance with local laws, and a credit check fee.

Many lenders may also require a personal guarantee, which can be debilitating in a default and can also impact the owner’s ability to qualify for a personal loan, such as a mortgage. A secured loan could be more advantageous because the rate will likely be lower and the lender might not require a personal guarantee, Miskowitz said.

Merchant cash advance

With a merchant cash advance, companies borrow money against their future sales and pay it back as these sales are generated, often over three to 18 months. A merchant cash advance can be particularly attractive when a small business needs cash fast, generally within a few days, said Alan Wink, managing director of Eisner Advisory Group. This type of funding can also be more accessible to owners with bad credit.

But there are caveats. Terms vary widely by provider and the cost of capital typically isn’t expressed as an APR, making it harder for businesses to understand. Funders charge their fees as a factor rate, generally 1.1 to 1.5, according to NerdWallet.

The advance amount multiplied by the factor rate is what needs to be paid back. But knowing that total doesn’t necessarily help the owner understand how expensive the cash advance is since owners are generally more familiar with APR. Doing a conversion can be useful for comparison purposes. 

A cash advance can be quite costly — in the triple digits when expressed as an APR, according to NerdWallet. 

Fixed vs. variable rate debt

Beyond the type of financing, businesses need to consider whether the rate is fixed or variable, the duration, the business’s ability to pay it back on time, costs, including underwriting and late fees, if any, whether personal or business guarantees are required, and what happens if a payment is missed.

“This is not a scroll-down-and-accept-the-terms-situation,” said Will Luckert, president of small business solutions at Corpay, a corporate payments company. “There can be a number of tricky things buried in the terms and conditions,” Luckert said.

Especially with merchant cash advance, owners get into trouble because they don’t understand what they are signing up for. Start by crunching the numbers on your own. To illustrate, Luckert offers the example of a $10,000 advance where $12,000 needs to be repaid in 30 days. To determine the APR, take $12,000 and divide by $10,000. Then subtract one and multiply by 100. Take that answer, 20 percent, and multiple by 12 to get an APR of 240%. Owners can also use this NerdWallet calculator to help determine what their effective APR would be.

Also consider the repayment frequency — daily, weekly or monthly — especially if you are already in a cash crunch, Davis said. She doesn’t recommend daily repayments, for example, saying, “It’s a quick fix to a problem that can become a ruinous cycle.”

In an attempt to protect small businesses, California now requires certain cost disclosures to merchants. New York is also implementing disclosure rules, even as the California regulations are being challenged in court. In the meantime, it’s still a buyer-beware market. “People need to do the math themselves, especially on a cash advance, and see if there’s anything you can do that would be less expensive,” said Paul A. Rianda, an attorney in Irvine, Calif., who specializes in serving the bankcard industry.

How to find a reputable business loan provider 

To help avoid a bad actor, it’s a good idea to vet potential providers through your CPA or attorney since they likely deal with online providers frequently, Wink said. 

Also look at online customer reviews and browse for regulatory actions against the funding company, said Waseem Daher, chief executive and cofounder of Pilot, which specializes in bookkeeping, tax, and CFO services for high-growth technology startups.

Owners can also check in with the Small Business Finance Association, an industry organization whose 25 members are mostly online lenders and funders. Members of the SBFA have to agree to follow certain best practices related to pricing and term transparency, access to customer service and fair collection, among other things. A small business can contact the SBFA to see if a particular financing company is a member or to ask specific questions about the industry, said Steve Denis, the organization’s executive director.

Additionally, the SBFA has a relatively new certification for industry professionals to help ensure they are properly trained. A database of certified professionals is planned for the future, but in the meantime, owners can contact the SBFA for this information, Denis said. 

Other alternative lending options

Depending on the circumstances, another form of funding might be a better option. This could include family and friends, investor equity or credit cards. Businesses should also think about what can potentially be done to prop up the business without relying on third-parties, Daher said.

Can you get your customers to prepay in exchange for a discount, for example? Can you get longer payment terms from your vendors? Can you do anything else to reduce your costs?

These efforts won’t cost you anything and can help avoid the need to rely on a third-party for funding, Daher said.

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Here’s what the Federal Reserve’s 25 basis point interest rate hike means for your money

The Federal Reserve raised the target federal funds rate for the eighth time in a row on Wednesday, in its continued effort to tame persistent inflation.

At its latest meeting, the central bank approved a more modest 0.25 percentage point increase after recent signs that inflationary pressures have started to cool.

“The easing of inflation pressures is evident, but this doesn’t mean the Federal Reserve’s job is done,” said Greg McBride, chief financial analyst at Bankrate.com. “There is still a long way to go to get to 2% inflation.”

What the federal funds rate means to you

The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves do affect the borrowing and saving rates consumers see every day.

This rate hike will correspond with a rise in the prime rate and immediately send financing costs higher for many forms of consumer borrowing — putting more pressure on households already under financial strain.

“Inflation has shredded household budgets and, in many cases, households have had to lean against credit cards to bridge the gap,” McBride said.

On the flip side, “with rates still rising and inflation now declining, it is the best of both worlds for savers,” he added.

How higher interest rates can affect your money

1. Your credit card rate will rise

Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rises, the prime rate does, as well, and your credit card rate follows suit within one or two billing cycles.

“Credit card interest rates are already as high as they’ve been in decades,” said Matt Schulz, chief credit analyst at LendingTree. “While the Fed is taking its foot off the gas a bit when it comes to raising rates, credit card APRs almost certainly will keep climbing for at least the next few months, so it is important that cardholders continue to focus on knocking down their debt.”

Credit card annual percentage rates are now near 20%, on average, up from 16.3% a year ago, according to Bankrate. At the same time, more cardholders carry debt from month to month while paying sky-high interest charges — “that’s a bad combination,” McBride said.

At more than 19%, if you made minimum payments toward the average credit card balance — which is $5,474, according to TransUnion — it would take you almost 17 years to pay off the debt and cost you more than $7,528 in interest, Bankrate calculated.

Altogether, this rate hike will cost credit card users at least an additional $1.6 billion in interest charges in 2023, according to a separate analysis by WalletHub.

“A 0% balance transfer credit card remains one of the best weapons Americans have in the battle against credit card debt,” Schulz advised.

Otherwise, consumers should consolidate and pay off high-interest credit cards with a lower-interest personal loan, he said. “The rates on new personal loan offers have climbed recently as well, but if you have good credit, you may be able to find options that feature lower rates that what you currently have on your credit card.”

2. Mortgage rates will stay higher

Rates on 15-year and 30-year mortgages are fixed and tied to Treasury yields and the economy. As economic growth has slowed, these rates have started to come down but are still at a 10-year high, according to Jacob Channel, senior economist at LendingTree.

The average interest rate for a 30-year fixed-rate mortgage is now around 6.4% — up almost 3 full percentage points from 3.55% a year ago.

“Relatively high rates, combined with persistently high home prices, mean that buying a home is still a challenge for many,” Channel said.

This rate hike has increased the cost of new mortgages by around 10 basis points, which translates to roughly $9,360 over the lifetime of a 30-year loan, assuming the average home loan of $401,300, WalletHub found. A basis point is equal to 0.01 of a percentage point.

“We’re still a ways away from the housing market being truly affordable, even if it has recently become a bit less expensive,” Channel said.

Other home loans are more closely tied to the Fed’s actions. Adjustable-rate mortgages, or ARMs, and home equity lines of credit, or HELOCs, are pegged to the prime rate. Most ARMs adjust once a year, but a HELOC adjusts right away. Already, the average rate for a HELOC is up to 7.65% from 4.11% a year ago.

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3. Auto loans will get more expensive

Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans, so if you are planning to buy a car, you’ll shell out more in the months ahead.

The average interest rate on a five-year new car loan is currently 6.18%, up from 3.96% last year.

The Fed’s latest move could push up the average interest rate even higher, although consumers with higher credit scores may be able to secure better loan terms or look to some used car models for better deals.

Paying an annual percentage rate of 6% instead of 4% would cost consumers $2,672 more in interest over the course of a $40,000, 72-month car loan, according to data from Edmunds.

“The ever-increasing costs of financing remain a challenge,” said Ivan Drury, Edmunds’ director of insights.

4. Some student loans will get pricier

Federal student loan rates are also fixed, so most borrowers won’t be affected immediately. But if you are about to borrow money for college, the interest rate on federal student loans taken out for the 2022-23 academic year already rose to 4.99%, up from 3.73% last year and any loans disbursed after July 1 will likely be even higher.

If you have a private loan, those loans may be fixed or have a variable rate tied to the Libor, prime or T-bill rates, which means that as the central bank raises rates, borrowers will likely pay more in interest, although how much more will vary by the benchmark.

Currently, average private student loan fixed rates can range from just under 4% to almost 15%, according to Bankrate. As with auto loans, they also vary widely based on your credit score.

For now, anyone with existing federal education debt will benefit from rates at 0% until the payment pause ends, which the Education Department expects to happen sometime this year.

What savers should know about higher interest rates

The good news is that interest rates on savings accounts are finally higher after the recent run of rate hikes.

While the Fed has no direct influence on deposit rates, they tend to be correlated to changes in the target federal funds rate, and the savings account rates at some of the largest retail banks, which have been near rock bottom during most of the Covid pandemic, are currently up to 0.33%, on average.

Also, thanks, in part, to lower overhead expenses, top-yielding online savings account rates are as high as 4.35%, much higher than the average rate from a traditional, brick-and-mortar bank.

Rates on one-year certificates of deposit at online banks are even higher, now around 4.75%, according to DepositAccounts.com.

As the Fed continues its rate-hiking cycle, these yields will continue to rise, as well. However, you have to shop around to take advantage of them, according to Yiming Ma, an assistant finance professor at Columbia University Business School.

“If you haven’t already, it’s really important to benefit from the high interest environment by getting a higher return,” she said.

Still, because the inflation rate is now higher than all of these rates, any money in savings loses purchasing power over time. 

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Here’s what the Federal Reserve’s half-point rate hike means for you

The Federal Reserve raised its target federal funds rate by 0.5 percentage points at the end of its two-day meeting Wednesday in a continued effort to cool inflation.

Although this marks a more typical hike compared to the super-size 0.75 percentage point moves at each of the last four meetings, the central bank is far from finished, according to Greg McBride, chief financial analyst at Bankrate.com.

“The months ahead will see the Fed raising interest rates at a more customary pace,” McBride said.

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The latest move is only one part of a rate-hiking cycle, which aims to bring down inflation without tipping the economy into a recession, as some feared would have happened already.

“I thought we would be in the midst of a recession at this point, and we’re not,” said Laura Veldkamp, a professor of finance and economics at Columbia University Business School.

“Every single time since World War II the Federal Reserve has acted to reduce inflation, unemployment has shot up, and we are not seeing that this time, and that’s what stands out,” she said. “I couldn’t really imagine a better scenario.”

Still, the combination of higher rates and inflation has hit household budgets particularly hard.

What the federal funds rate means for you

The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. Whether directly or indirectly, higher Fed rates influence borrowing costs for consumers and, to a lesser extent, the rates they earn on savings accounts.

For now, this leaves many Americans in a bind as inflation and higher prices cause more people to lean on credit just when interest rates rise at the fastest pace in decades.

With more economic uncertainty ahead, consumers should be taking specific steps to stabilize their finances — including paying down debt, especially costly credit card and other variable rate debt, and increasing savings, McBride advised.

Pay down high-rate debt

Since most credit cards have a variable interest rate, there’s a direct connection to the Fed’s benchmark, so short-term borrowing rates are already heading higher.

Credit card annual percentage rates are now over 19%, on average, up from 16.3% at the beginning of the year, according to Bankrate.

The cost of existing credit card debt has already increased by at least $22.9 billion due to the Fed’s rate hikes, and it will rise by an additional $3.2 billion with this latest increase, according to a recent analysis by WalletHub.

If you’re carrying a balance, “grab one of the zero-percent or low-rate balance transfer offers,” McBride advised. Cards offering 15, 18 and even 21 months with no interest on transferred balances are still widely available, he said.

“This gives you a tailwind to get the debt paid off and shields you from the effect of additional rate hikes still to come.”

Otherwise, try consolidating and paying off high-interest credit cards with a lower interest home equity loan or personal loan.

Consumers with an adjustable-rate mortgage or home equity lines of credit may also want to switch to a fixed rate. 

How to know if we are in a recession

Because longer-term 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the broader economy, those homeowners won’t be immediately impacted by a rate hike.

However, the average interest rate for a 30-year fixed-rate mortgage is around 6.33% this week — up more than 3 full percentage points from 3.11% a year ago.

“These relatively high rates, combined with persistently high home prices, mean that buying a home is still a challenge for many,” said Jacob Channel, senior economic analyst at LendingTree.

The increase in mortgage rates since the start of 2022 has the same impact on affordability as a 32% increase in home prices, according to McBride’s analysis. “If you had been approved for a $300,000 mortgage in the beginning of the year, that’s the equivalent of less than $204,500 today.”

Anyone planning to finance a new car will also shell out more in the months ahead. Even though auto loans are fixed, payments are similarly getting bigger because interest rates are rising.

The average monthly payment jumped above $700 in November compared to $657 earlier in the year, despite the average amount financed and average loan term lengths staying more or less the same, according to data from Edmunds.

“Just as the industry is starting to see inventory levels get to a better place so that shoppers can actually find the vehicles they’re looking for, interest rates have risen to the point where more consumers are facing monthly payments that they likely cannot afford,” said Ivan Drury, Edmunds’ director of insights. 

Federal student loan rates are also fixed, so most borrowers won’t be impacted immediately by a rate hike. However, if you have a private loan, those loans may be fixed or have a variable rate tied to the Libor, prime or T-bill rates — which means that as the Fed raises rates, borrowers will likely pay more in interest, although how much more will vary by the benchmark.

That makes this a particularly good time to identify the loans you have outstanding and see if refinancing makes sense.

Shop for higher savings rates

While the Fed has no direct influence on deposit rates, they tend to be correlated to changes in the target federal funds rate, and the savings account rates at some of the largest retail banks, which were near rock bottom during most of the Covid pandemic, are currently up to 0.24%, on average.

Thanks, in part, to lower overhead expenses, the average online savings account rate is closer to 4%, much higher than the average rate from a traditional, brick-and-mortar bank.

“The good news is savers are seeing the best returns in 14 years, if they are shopping around,” McBride said.

Top-yielding certificates of deposit, which pay between 4% and 5%, are even better than a high-yield savings account.

And yet, because the inflation rate is now higher than all of these rates, any money in savings loses purchasing power over time. 

What’s coming next for interest rates

Consumers should prepare for even higher interest rates in the coming months.

Even though the Fed has already raised rates seven times this year, more hikes are on the horizon as the central bank slowly reins in inflation.

Recent data show that these moves are starting to take affect, including a better-than-expected consumer prices report for November. However, inflation remains well above the Fed’s 2% target.

“They will still be raising interest rates now and into 2023,” McBride said. “The ultimate stopping point is unknown, as is how long rates will stay at that eventual destination.”

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Correction: A previous version of this story misstated the extent of previous rate hikes.

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The Federal Reserve is about to hike interest rates one last time this year. Here’s how it may affect you

The Federal Reserve is expected on Wednesday to raise interest rates for the seventh time this year to combat stubborn inflation. 

The U.S. central bank will likely approve a 0.5 percentage point hike, a more typical pace compared with the super-size 75 basis point moves at each of the last four meetings.

This would push benchmark borrowing rates to a target range of 4.25% to 4.5%. Although that’s not the rate consumers pay, the Fed’s moves still affect the rates consumers see every day.

Why a smaller rate hike may be ‘pretty good news’

By raising rates, the Fed makes it costlier to take out a loan, causing people to borrow and spend less, effectively pumping the brakes on the economy and slowing down the pace of price increases. 

“For most people this is pretty good news because prices are starting to stabilize,” said Laura Veldkamp, a professor of finance and economics at Columbia University Business School. “That’s going to bring a lot of reassurance to households.”

However, “there are some households that will be hurt by this,” she added — particularly those with variable rate debt.

For example, most credit cards come with a variable rate, which means there’s a direct connection to the Fed’s benchmark rate.

But it doesn’t stop there.

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What the Fed’s rate hike means for you

Another increase in the prime rate will send financing costs even higher for many other forms of consumer debt. On the flip side, higher interest rates also mean savers will earn more money on their deposits.

“Credit card rates are at a record high and still increasing,” said Greg McBride, chief financial analyst at Bankrate.com. “Auto loan rates are at an 11-year high, home equity lines of credit are at a 15-year high, and online savings account and CD [certificate of deposit] yields haven’t been this high since 2008.”

Here’s a breakdown of how increases in the benchmark interest rate have impacted everything from mortgages and credit cards to car loans, student debt and savings:

1. Mortgages

2. Credit cards

Credit card annual percentage rates are now more than 19%, on average, up from 16.3% at the beginning of the year, according to Bankrate.

“Even those with the best credit card can expect to be offered APRs of 18% and higher,” said Matt Schulz, LendingTree’s chief credit analyst.

But “rates aren’t just going up on new cards,” he added. “The rate you’re paying on your current credit card is likely going up, too.”

Further, households are increasingly leaning on credit cards to afford basic necessities since incomes have not kept pace with inflation, making it even harder for those carrying a balance from month to month.

If the Fed announces a 50 basis point hike as expected, the cost of existing credit card debt will increase by an additional $3.2 billion in the next year alone, according to a new analysis by WalletHub.

3. Auto loans

Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans. So if you are planning to buy a car, you’ll shell out more in the months ahead.

The average interest rate on a five-year new car loan is currently 6.05%, up from 3.86% at the beginning of the year, although consumers with higher credit scores may be able to secure better loan terms.

Paying an annual percentage rate of 6.05% instead of 3.86% could cost consumers roughly $5,731 more in interest over the course of a $40,000, 72-month car loan, according to data from Edmunds.

Still, it’s not the interest rate but the sticker price of the vehicle that’s primarily causing an affordability crunch, McBride said.

4. Student loans

The interest rate on federal student loans taken out for the 2022-23 academic year already rose to 4.99%, up from 3.73% last year and 2.75% in 2020-21. It won’t budge until next summer: Congress sets the rate for federal student loans each May for the upcoming academic year based on the 10-year Treasury rate. That new rate goes into effect in July.

Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that, as the Fed raises rates, those borrowers are also paying more in interest. How much more, however, will vary with the benchmark.

Currently, average private student loan fixed rates can range from 2.99% to 14.96%, and 2.99% to 14.86% for variable rates, according to Bankrate. As with auto loans, they vary widely based on your credit score.

5. Savings accounts

On the upside, the interest rates on some savings accounts are also higher after consecutive rate hikes.

While the Fed has no direct influence on deposit rates, the rates tend to be correlated to changes in the target federal funds rate. The savings account rates at some of the largest retail banks, which were near rock bottom during most of the Covid pandemic, are currently up to 0.24%, on average.

Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are as high as 4%, much higher than the average rate from a traditional, brick-and-mortar bank, according to Bankrate.

“Interest rates can vary substantially, especially in today’s interest rate environment in which the Fed has raised its benchmark rate to its highest level in more than a decade,” said Ken Tumin, founder of DepositAccounts.com.

“Banks make money off of customers who don’t monitor their interest rates,” Tumin said.

With balances of $1,000 to $25,000, the difference between the lowest and highest annual percentage yield can result in an additional $51 to $965 in a year and $646 to $11,685 in 10 years, according to an analysis by DepositAccounts.

Still, any money earning less than the rate of inflation loses purchasing power over time. 

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