Potential Household Costs of New Fed Rate Hike

Homeowners and consumers will start to feel the impact of the new interest rate increase announced this week from the Federal Reserve, lifting its overnight benchmark lending rate to between 1.50 and 1.75 percent.

Fixed-rate mortgages will become more expensive, Reuters reports, potentially slowing down the housing market, "Higher interest rates typically depress home values by making monthly mortgage payments more expensive." The Fed signaled that there will be at minimum two more interest rate hikes in 2018. On the other hand, the rate hikes are beneficial to those with savings accounts as yields continue to increase.

The average rate on a five-year Treasury-indexed adjustable-rate mortgage is currently about 3.67 percent, according to Freddie Mac. ARM rates are modified annually, so a 0.25 percentage point increase in the rate in March wouldn’t have an immediate effect. But when it does kick in, it could add up to $1,250 a year to interest payments on a $500,000 mortgage. That mortgage owner could pay an additional $312.50 a month, or $3,750 a year, in interest if the Fed follows through with two more quarter-point hikes this year.

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