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How rising rates affect your pocketbook
Rising rates means higher monthly payments -- are you ready for them?
By Christian Zappone, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - Interest rates are on the rise. The yield on the 10-year Treasury-bond yield zoomed past the 5 percent mark Thursday -- its highest level in four years.

It's not just bond traders who should care. Rising rates will have an effect on your finances. Especially if you own a home or are shopping for one. Or if you use a credit card. Or are just paying one off.

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Mortgage Rates
30 yr fixed 3.84%
15 yr fixed 2.87%
5/1 ARM 3.02%
30 yr refi 3.89%
15 yr refi 2.97%

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Rates provided by Bankrate.com.

Interest rates are simply the cost of borrowing money; the prices paid by institutions trickle down to the consumer. So if you're in the market for a home, the mortgage rates offered you are a reflection of the terms the banks can secure from institutional lenders. As their rates rise, so do yours.

For home shoppers, a jump in interest rates from 6 percent to 7 percent on a 30-year loan adds about 10 percent to a monthly mortgage bill. A homeowner who financed a loan of $200,000 at 6 percent would pay about $1,200 a month. At 7 percent, the bill would come to $1,330.

For homeowners using adjustable rate mortgages (ARMs), rising interest rates mean ballooning payments. At best, the upwardly moving rate in an ARM puts the date of full ownership further over the horizon. At worst, homeowners on tight budgets have trouble affording the payments.

The Mortgage Bankers Association estimates that some $330 billion worth of ARMs will adjust in 2006 and $1 trillion worth will reset by the end of 2007. With a $200,000 loan adjusting upward from 4 percent to 6 percent, the monthly bill would increase to about $1,200, from $955.

"The 10 year bond is the traditional benchmark for 30-year mortgage rates," said Mike Fratantoni, Sr. Economist at the Mortgage Bankers Association. "So the rising rates may reduce affordability for some consumers hoping to buy a home."

While there's no specific link between the 10-year Treasury yields and credit card interest rates, the average on variable rate cards has also shot up almost three percentage points in the past year to 15.81 percent, according to Cardweb.com.

That's because the variable rate is tied to the prime rate, which tracks the fed funds rate, the interest banks charge each other for overnight loans. The Federal Reserve has increased this rate 15 straight times since June of 2004, to a recent 4.75 percent. Top of page

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