For Most Borrowers, the Rate Hike Hits Home Gently - increase in interest rates should not be painful to most borrowers - Brief Article

Kiplinger's Personal Finance Magazine, Sept, 1999 by Mark Solheim

Depending on what kind of debt you have, you might not even notice the pinch.

Now that the Federal Reserve's hike in the federal funds rate has worked its way into the system, what does that extra quarter of a point really mean to you?

For borrowers, loans tied to the prime rate are pricier--but just a little. The prime tracks the Fed's maneuverings, so it's up from 7.75% to 8%. If you have $15,000 outstanding on a home-equity line of credit that charges prime, the change hikes your monthly interest from $97 a month to $100. If you keep a $2,000 running balance on a variable-rate credit card, you'll pay an extra 42 cents per month in interest.

One-year adjustable-rate mortgages will bump up a bit on their next anniversary. Payments on, say, a $200,000 ARM that rises from 7.5% to 7.75% would go up $42 a month. The Fed's move will probably add a quarter point to the rate you pay for your next car loan. On a four-year, $20,000 car loan, that's an extra $113 over the life of the loan.

THE GOOD NEWS. Rates on fixed-rate mortgages may actually drop for new borrowers. The bond market anticipated the Fed's announcement and had already moved rates higher. Because the Fed's modest move was no surprise, mortgage rates should stabilize and may even drift down.

And savers in money-market funds and CDs should enjoy slightly higher yields, though rates on the best-paying CDs are usually artificially high to attract new customers.

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