How the Fed rate increase affects your mortgage, car loan and credit card bill

Anyone with a credit card will see a small but instant shock to their interest rate, followed by borrowers with student and auto loans and, eventually, mortgage holders.

The Federal Reserve’s decision Wednesday to raise its benchmark interest rate, the fifth increase since the financial crisis, will probably reach beyond Wall Street and into most American homes.

Anyone with a credit card will see a small but instant shock to their interest rate, followed by borrowers with student and auto loans and, eventually, mortgage holders.

At the Fed’s final meeting of the year, central bank policymakers set the target federal funds rate between 1.25 and 1.5 percent, a quarter-point increase.

The psychological effect of the increase, the third of 2017, may be dulled as consumers grow conditioned to such moves.

But more are coming. The economy seems healthy, with low unemployment and the promise of stimulus measures like the Republican plan to cut taxes. The Fed is raising the rate to prevent the economy from overheating, and expect three more increases in 2018.

Ethan S. Harris, an economist with Bank of America Merrill Lynch, cautioned in a note to investors that “there is no such thing as a painless Fed hiking cycle.”

Credit cards

Credit card debt is already expensive, with interest rates at more than 13 percent on average, according to Fed data. The latest rate increase could make using plastic slightly pricier.

Unlike homeowners and other borrowers, cardholders are immediately affected by an increase. Card rates are based on a bank’s prime rate, which is usually set at 3 percentage points above the high end of the Fed’s benchmark. Cardholders pay a premium above the prime rate that is determined largely by their creditworthiness.

That final rate tends to be variable, allowing banks to make adjustments when their own borrowing costs increase. This could cause payments to balloon, because credit cards tend to compound…

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