Date February 02, 2005
Time 04:00 PM - 05:00 PM
Station CNBC
Location Network
Program Closing Bell

MARIA BARTIROMO, anchor: Hampton, thank you. Now, let's take a look at the impact of today's decision on Main Street. We bring in CNBC's personal finance correspondent Sharon Epperson.

SHARON EPPERSON reporting: Thank you, Maria. Well, the series of rate hikes that the Fed has imposed since June hasn't packed too hard a blow on consumers. Counting today's rate hike, the Fed fund's rate has increased 1 1/2 percentage points in that time, while the average rate on a two-year personal loan, for example, has increased only about .04 percentage points. Still, while the Feds move has been gradual, this result, when all is said and done, could be significant for some consumers.

Mr. PAT HAYES (Home Equity Line Borrower): We see it as a great way to borrow money at a very cheap price.

EPPERSON: For Pat Hayes taking out a home equity line of credit last year seemed an inexpensive way to pay down the mortgage on a vacation home.

Mr. HAYES: I could utilize that money and kind of get rid of the debt that I owed.

EPPERSON: But the bite of rising interest rates may eventually become too much for some borrowers to bare.

Mr. GREG McBRIDE (Bankrate.com): The average rate on a home equity line of credit is 5.7 percent, and it's variable. So a year from now that home equity line of credit could have a rate of 7.5 percent, maybe more depending on how aggressive the Fed is.

EPPERSON: Say your current interest-only payment on a $100,000 home equity line at 5.7 percent is $475 a month. If the rate spikes to 7 percent by next year, your monthly payment will have increased to $583, an extra $108 a month.

So mortgage broker Bob Moulton advises:

Mr. BOB MOULTON (Americana Mortgage Group): Pay off extra while the rates are low, because when the rates do go higher, 7 maybe even 8 percent, you won't have as much of a balance and the lower balance will offset the higher interest rates.

EPPERSON: Just as variable rate home equity lines now make up about 80 percent of the home equity market, about a third of all mortgages are adjustable rate mortgages; many of them hybrid arms. And homeowners with these loans, whose fixed period is up, or whose rate may soon adjust, could also feel the pinch.

Mr. McBRIDE: When you start increasing the amount of that payment by $100 or $200 a month; each year when that rate comes time to adjust, that's a pretty significant impact to household budgets.

EPPERSON: Consumers who've racked up credit card debt are already in financial hot water, but could potentially get scalded by rising rates. After all, the average rate on a platinum variable rate card has increased from 10.7 percent to over 12 percent since last June. And even fixed rate credit cards are no haven from higher rates, since issuers can switch from a six to a variable rate card with little warning.

Now, if you're trying to decide whether or not to refinance if you've taken out an adjustable rate mortgage, here's some things to think about. How long do you plan to stay in a home? If it's longer than a fixed period of the loan, you probably are fine. If your rate will adjust in the next year or so though, you probably want to refinance because rates will likely be higher than they are now.

BARTIROMO: Good info, Sharon, as always. Thank you. Sharon Epperson.