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Consumers can expect more expensive loans after the Fed hikes interest rates

The hike mostly affects banks, but higher costs are often passed on to consumers

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(c) Courtney K -- Getty Images
The Federal Reserve has raised its overnight lending rate by 0.75%, the largest single increase since 2008 and the latest move to try to contain rising inflation.

The rate is still low by historical comparison, and more increases are anticipated at future Fed meetings between now and the end of the year. The federal funds rate is not paid directly by consumers, though it influences the interest rates on several types of consumer loans.

The Fed rate hike will increase the interest rate banks pay when they borrow money from the Federal Reserve. After a Fed rate hike banks usually raise their prime rate – the interest rate they offer their best customers.

That filters down to the consumer level in several different ways. The rate on auto loans will usually go up to reflect the increase, for example.

Higher credit card rates

The interest rate on credit cards, already near a record high, will also go up as a result. The interest rate on personal loans can also be expected to rise. ConsumerAffairs has listed other factors that influence the interest rate on personal loans.

The federal funds rate does not directly affect mortgage rates, which tend to move with the yield on the Treasury Department’s 10-year bond. That yield has been rising because of inflation and in anticipation of the Fed’s action.

Holden Lewis, home and mortgage specialist at NerdWallet, says the mortgage market sometimes moves ahead of any action taken by the Federal Reserve.

“Mortgage rates tend to go up and down in anticipation of Fed rate moves, which is a way of saying that the Fed increase was already ‘baked into’ mortgage rates,” Lewis told ConsumerAffairs. “In other words, mortgage rates are more likely to go up or down before Fed meetings than after Fed meetings. Over the next week or two, we probably won't see big movements in mortgage rates like we did last week.”

Mortgage rates are now over 6%

This week saw a major move in interest rates, with the average interest rate on a 30-year fixed-rate mortgage rising to more than 6%, a major blow to people shopping for a home. But the rate can be higher or lower.

ConsumerAffairs has published a breakdown of the factors affecting an individual's mortgage rate. They include credit score and the amount of the down payment.

“Home sales are slowing dramatically because of skyrocketing mortgage rates,” Lewis said. "The decreased demand means we'll soon see a slowdown in home price increases.”

Meanwhile, consumers looking for a home will have to shop carefully for a mortgage. ConsumerAffairs has listed the latest mortgage rates here.

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