By Jonnelle Marte

(Reuters) – On Wednesday, the Federal Reserve increased short-term rates by a quarter point. It also signaled its intention to raise them even further over the next months in order to combat high inflation. This shift will be felt most householders.

A shift in consumer behavior is underway, with higher interest rates causing consumers to borrow more money to finance their homes and vehicles. As a result, inflation could be slowed down and demand may drop.

We will take a closer look at how rising interest rates may affect borrower’s lives.

MORTGAGES

The Fed raising rates in anticipation of mortgage rates rising, and they are expected to rise further as the Fed increases short-term borrowing costs. According to the Mortgage Bankers Association (MBA), the 30-year average fixed rate mortgage rate was 4.27% for the week that ended March 11, an increase of roughly one percentage point over a year and at its highest level since May 2019

A higher mortgage rate can make it harder for potential buyers to purchase a house. To keep their payments affordable, buyers might need to raise their monthly payment or look for a more affordable home.

However, rising borrowing costs may reduce demand. But with record-low inventory, it might take some time before this shift impacts home prices. Domonic Purviance is a real estate expert at the Atlanta Fed. Purviance said that although home prices might rise more slowly over the short term, they will not fall.

AUTO LOANS

Car prices have risen due to a shortage, and higher interest rates may make it more difficult for car loan holders. Because the Fed’s short-term interest rate can inadvertently affect auto loan rates, People with cars that were purchased using a fixed rate loan should not be affected.

Many people may be discouraged from purchasing more vehicles due to higher borrowing costs. Comparing the rates of multiple lenders can help buyers to find a lower loan.

SAVINGS

Although rate increases by the Fed could result in higher savings account yields, this may take time. If they have cash, banks might take time raising the rate they charge on deposits.

The increase in short-term rates will eventually lead to higher payouts for certificates of deposit and savings accounts. Savings accounts that are online offer higher yields than accounts at banks. You can find rates from different financial institutions online and compare them.

CREDIT LINES

Some types of adjustable rate loans, such as home equity credit lines and credit cards may feel the Fed’s rates moves nearly immediately.

Although the first rate rise of 0.25 percentage points announced Wednesday might not be a major blow for consumers, it may prove to be a significant one. However, borrowers may feel even more pressure after several rate increases.

Fed officials believe that the benchmark overnight interest rate for the central bank will rise from 1.75% to 2.00% this year to 2.8% next year.

Greg McBride chief financial analyst of Bankrate stated that the cost of debt “is only going to increase over the next couple years.”