What Should I Do If Interest Rates Rise?
Wondering what you should do if interest rates rise? Here are some thoughts from Abri CEO Brian Cedergren…
What will happen to interest rates over the short term is anyone’s guess. We have seen interest rates remained relatively unchanged for the past few years. However, one thing I’m very confident about is when they move they will be going UP! Because rates have been stable for such an extended period, I believe we have seen the bottom of this low rate cycle and it is only a matter of time before the Federal Reserve begins to tighten and that means these wonderful borrowing rates will end. In fact, recent minutes from the Federal Reserve Meetings have been talking about an interest rate hike before the end of 2015.
The rate on 30-year fixed-rate mortgages, for example, is typically tied to the yield on 10-year Treasury bonds. The yield is the rate of return expressed as a percentage. When the yield goes up or down so do interest rates.
Rates on adjustable rate mortgages (ARMs), meanwhile, are tied to the Federal funds rate. This is the rate at which a depository institution or bank lends funds maintained at the Federal Reserve to one another overnight. (For more, see: Mortgages: Fixed-rate vs. Adjustable Rate.)
When the economy is ailing the Federal Reserve keeps interest rates low to encourage borrowing and stimulate spending among consumers. This is what happened after the financial and housing markets collapsed and why rates have remained at historical lows.
Investopedia states that, “Barring another financial and housing market implosion, and if the economy continues to improve, expect interest rates to rise in the latter half of 2015. If they do jump to the 5% range it will be a modest hike when compared to historical averages. Rates will still be far below the approximately 8.5% 30-year fixed-rates mortgages have averaged since 1971 when Freddie Mac started tracking them. Rates averaged 6% in the years leading up to the recession.” (For more, see: Mortgage Basics: An Introduction.)
Borrowing money is never an easy decision as it is truly an advance of your future earnings. But, with rates this low you won’t find a better time to borrow inexpensively and get those items you’ve been putting off. Your credit union has fantastic rates on both secured and unsecured financing and we have money to lend. We make all our decisions locally and have a staff ready and waiting to serve your needs.
Drop by, call or visit our web site at www.abricu.com and we’ll be happy to help you lock into these great rates before they are gone for good.