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  • Writer's pictureMalak Ammar

How Rising Rates Can Affect Your Finances

Interest rates over the last few years have been constantly climbing, leading to drastic effects on individuals' finances.

federal reserve increasing interest rates

The Federal Reserve has been pressing interest rates in 2022, aiming to fight the continuous rise of inflation and there seems to be an upward trajectory for this course of action through 2023. While the intention is sound, higher interest rates could potentially harbor many economic obstacles for consumers and businesses

If you are thinking of buying a home next year, higher mortgage rates are definite. Already, rates on fixed mortgages have shot up from 3% to 5% in these last few months, by the end of 2023 with this continuous trend, rates could exceed 6% and over. With this pattern, monthly payments for buyers will rise and might even price some out of the market completely. This will create a cycle in that there will be a cooler housing market environment which will lead to a decrease in home sales. This will also apply to auto loans and leasing, leading customers to secure lower financing on a new car before payments balloon or even worse for the market, completely halt their purchases.

interest rates on mortgages over the last 30 years

Many major businesses will also feel this pressure of rates increasing, as they will face higher borrowing costs for equipment upgrades, facilities expansion, and operations, thus pushing them to pull back on investments such as growth and hiring.

These major changes would also have an extreme ripple effect on employee wages and consumer activity and engagement. This also applies to the federal government and borrowing, as they will also feel a restraint on constrained spending.

interest rates affecting workers

These effects will even reach consumers as it will affect many aspects of their financial spending and investment. Credit card debt would be a major concern since a rise in rates means minimum payments will swell. Alongside this, booking things as simple as vacations will become increasingly difficult soon as their prices will inflate just as much as their variable credit rate.

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