DENVER (KDVR) — If you are trying to refinance, buy a new house or borrow a large sum of money for something else, financial experts suggest securing the loan as soon as possible.
The advice comes on the heels of the Federal Reserve raising interest rates by another 75 basis points Wednesday.
“This is a necessary evil because inflation is 9.1%, which is very unprecedented for 40 years or so, so we had to do something major,” Metro State University professor Kishore Kulkarni said.
Wednesday’s rate hike represents the fourth this year, with another expected in September.
“When you increase the interest rate, people don’t borrow as much,” Kulkarni said. “And as you pay more, we don’t borrow as much. And if we don’t borrow as much, we don’t spend as much. And if we don’t spend as much, the prices start going down.”
However, the higher rates will affect anyone planning to borrow money, including for things like mortgages, car loans, private loans and credit cards.
“I think for the average person it is clearly harder to borrow,” Kulkarni said.
Americans may need to get used to higher rates
Still, he said while rates are rising quickly, they are not unprecedented.
“When you look at it even a mortgage rate of 5.5 or 6 is a pretty reasonable interest rate. It is not 8 percent or 10 percent as we have had it before,” he said.
Economists say the current interest rates may feel tougher to pay since the cost of loans has been so low for so long.
“The last time we had even 5% interest rate was way back in 2006 so we had 14, 15 years we have been used to getting a very cheap loan for houses and everywhere else,” Kulkarni said.
Some people, including many in their 30s, have enjoyed historically low interest rates their entire adult life. Kulkarni said higher rates will be something Americans may need to get used to all over again.
For anyone who already has a fixed rate mortgage or other fixed rate loan, the rate hike will have no effect. According to Kulkarni though, most people will still feel some of the effects of higher interest rates on their finances.
“Like let’s say a restaurant owner, he or she has to borrow to run the business and if she can not, then she will raise the prices at the restaurant and then probably you and I will end up paying a little bit more,” he said.