USA TODAY US Edition
For regular folks, rate bump is no big deal
Responsible buyers still likely to have easy access to loans
As the U.S. Federal Reserve convenes Wednesday and Thursday for a crucial policy meeting, everyone has been wondering whether the central bank will finally begin the process of raising key interest rates.
But many consumers are asking themselves a much more fundamental question: What would a rate increase mean for the typical family?
Even if we see higher interest rates, responsible borrowers still will probably have easy access to loans and rock-bottom rates, said Louis Navellier, chairman of money management firm Navellier & Associates in Reno.
“Technically, a rate increase will widen the wealth gap a bit,” Navellier said, as lower-income families see more of their budget dedicated to interest payments for auto loans and credit card debt. This is particularly true, he adds, for variable-rate debts, such as adjustable-rate mortgages, which tend to be attractive to less-affluent borrowers.
However, given the “immense political pressure” around the issue of stagnant wages and income inequality, he adds, it’s unlikely policymakers will allow any significant increase in borrowing costs over the coming months.
Similarly, it’s also worth remembering that while lower interest payments are always a plus, we shouldn’t expect a big change in borrowing habits after a rate increase, said Whitney Fite, president of Atlanta-based Angel Oak Home Loans.
Even with a modest bump, Fite said, auto and home loans will remain very accessible.
“Even after a potential rate hike, rates will remain at historically low levels,” he said. “Borrowers need to realize that mortgage rates moving from the 3s to 4s is not the end of the world.”
As for savers, it’s tempting to think that any Fed action to in- crease interest rates will would mean a better rate of return for your nest egg at your local bank. But that may not actually come to pass, said Greg McBride, chief financial analyst at Bankrate.com
“We’re starting at such a low level on interest rates that they have to rise quite a ways until we get back to those days of 3% to 4% on CDs,” McBride said. On top of that, most banks “are flush with deposits” and don’t have to aggressively court consumers with higher rates.
Besides, he adds, banks make money off the difference between deposit rates and lending rates and are incentivized to give a smaller bump to savers even if they can charge borrowers more.
“Just because the Fed starts to raise interest rates doesn’t mean those terms are going to land in savers’ laps,” McBride said.