PHILADELPHIA (KYW Newsradio) — The Federal Reserve, in an ongoing effort to tackle inflation, just raised its benchmark interest rate by 0.5%. It was the largest hike in more than 20 years and it is expected to take a bigger bite out of a lot of borrowers’ budgets.
The Wednesday increase was the Fed's second straight rate hike. It was the first time that there were back-to-back increases since 2006. Fed Chairman Jerome Powell promised there would be more hikes this year but not over the 0.5% mark. He said it's an effort to walk the tightrope of cooling the economy and chipping away at inflation, without slowing down the economy too much to cause a recession.
Mortgage rates are affected by the Fed’s decisions and they have already gone up around 2% in the last year. Simply put, higher interest means higher monthly payments, which could dash a lot of home buying dreams.
“In talking to clients recently that are in the process of buying, I’ve seen that their interest rates, in some cases, are already at 5%. If you look back two years ago, rates were 3%, even lower than 3,” said Moses Diaz, a housing counselor with Philadelphia-based credit counseling agency Clarifi.
Rising rates, on top of an already challenging and more expensive market for buyers, mean it is even more critical to make a calculated decision.
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“Try to step back a little bit, don’t go into panic mode. You may have to put this on hold for a little bit just to see what happens,” Diaz said.
“Because the last thing you want to do as a homebuyer is rush into a purchase that later you may regret, because either the cost was too much or the property you ended up with was not the ideal property for you.”
Those looking to get loan modification could also pay more than they would before rates went up, Diaz said. And those with credit card debt could have a longer road ahead to pay off their balances as APRs inch up.
“If the interest rates are higher, the minimum payments are gonna be higher,” He said.
Diaz recommends reaching out to a free credit counseling service for those looking to get on a better financial path.
Listen to more analysis of the rate hike on KYW Newsradio In Depth.
