Increase means higher interest payments on consumer loans

Short-term interest rates increased for the first time in four years Wednesday, meaning Inland Northwest residents with debt can expect to pay a bit more on purchases, and those looking to save will get a little more bang for their buck.

The increase will raise a key short-term interest rate to 1.25 percent, up from 1 percent.

“It’s not significant, a quarter of a percent,” Spokane Consumer Credit Counseling President Mark Harnishfeger said. But, he added, the increase might be enough to push people living from paycheck to paycheck into the red.

“As a result, what they feel is their lowest priority is going to suffer,” he said.

For many, that might come in the form of plastic, since the interest rate on many credit cards is variable and tied to the rate raised Wednesday.

“I think a majority of people have credit card debt, so I think that’s the people who are going to be hurt by it,” he said.

Harnishfeger said the average Inland Northwest credit-card debt is about $9,000, meaning one could expect to pay approximately $22.50 more in interest each year following the current rate increase.

John Wagner, president of Spokane Valley-based Farmers & Merchants Bank, said the rate increase will fully affect the market in the next few days. The increase will also have an impact over the long term, Wagner said. For someone with a $100,000 variable-rate loan, he said, interest will rise $125 per year.

“It’s an increase, but it’s our hope that as rates go up they go up gradually,” he said.

Moderate- and low-income homebuyers may not feel much impact from the rate increase, one housing executive said.

Low-income homebuyers often have access to state bond money offered at a fixed rate, typically a full point below the market, said Jan Roseleip, executive director of the Spokane HomeOwnership Resource Center. Many of the center’s customers – who have an average home value of $83,000 – are locked in at a fixed-rate mortgage between 5.1 percent and 5.5 percent, she said.

American West Bank President and CEO Wes Colley said the main impact of the rate increase will fall on banks. Colley said the quarter-point increase will force banks to pay higher rates to investors without seeing a similar return. Colley said he expects another increase, and a comparable outcome, in August.

“I don’t think either (increase) will help banks’ bottom line,” he said.