The financial outlook is still grim as interest rates continue to be stuck at historically high levels. According to Freddie Mac, the average rate on a 30-year fixed-rate mortgage as of May 6 has hit 6.91%. At the same time, the 15-year FRM is averaging 6.22%. This trend has painful consequences for both borrowers and savers. Credit card interest rates have now climbed well past 20%, recently hitting an all-time high in early 2024. These logging circumstances cast shadows of doubt on how people will pay their bills over the next few months.
This galley was produced by the Federal Reserve Board. Without additional targeted steps, these moves have so far failed to bring down the cost of borrowing for consumers that need it. In addition to those complications, banks are digging in on their record high credit card interest rates, making the financial landscape even worse. This stubbornness in the face of high rates suppresses new borrowing, particularly for those who already have loans at certainly lower rates.
Current Mortgage Rates and Their Impact
Mortgage rates largely track the yields on Treasury notes of similar duration and general economic strength. As of November 2024, those same rates had leveled out at 6.6% for 30-year products and 10.8% for 15-year products. Even worse, every high mortgage rate point pushes more would-be homebuyers out of the market. A lot of folks are scared to borrow against new projects when rates are this high.
Too many borrowers fear they can’t refinance or purchase new homes. It’s a huge and emotional difference between what they’re getting quoted now and what is currently locked in on their already-issued bonds. Michele Raneri, vice president and head of U.S. research and consulting at TransUnion, comments on this trend:
“Many borrowers are reluctant to take on a loan at today’s rates, particularly if they currently have a loan at a significantly lower rate.”
This hesitance has put the brakes on housing activity. Now, prospective homebuyers are deeply considering the equation of maintaining the value of their current loan with skyrocketing new mortgage costs.
Credit Card Rates Reach New Heights
After remaining above 20% on average for credit cards so far this year, the rates will likely continue to rise. That jump in rates is part of a broader surge in borrowing costs, mortgage rates included. Banks increased these rates to all time highs in response to economic pressures. Even as other interest rates rise and fall, most issuers are locking them in at the high end.
These burdens created by these record high credit card rates are made worse by the general increase in consumer prices. Ted Rossman, senior industry analyst at Bankrate, says that
“more people are carrying debt because of higher prices.”
This only adds more pressure to Americans just working to make ends meet as the cost of living grows while wages remain flat.
Future Outlook for Student Loans
Interest rates on student loans are another area that’s influenced by these economic forces. Undergraduate students borrowing direct federal student loans for the upcoming 2024-25 academic year will face an interest rate of 6.53%. It’s an almost unheard-of jump from last year’s rate of 5.50%. Rates for student loans are scheduled to drop a little, but only marginally, for the 2025-26 academic year. This change stems from the fact that the next May auction of the 10-year Treasury note will occur during this period.
Whether students are going to school next semester or a few years from now, it’s important to know what these interest rates will mean for them. That’s a huge trillion dollar long term financial cost for graduates just starting their careers.