For the past 8 or 9 years, we had 0% interest rates, providing cheap money when borrowing. This had a major effect on credit rates, mortgage rates and your purchase of anything having to do with borrowing... hello new car! For the past year however, interest rates have been slowly climbing by ¼ % increments- moving higher but tolerable. The markets have been focused on the 30 year Treasury, pegging a 3% return as the turning point when people will once again begin to move from the equities market back into the bond market. While the focus has been at the 3% threshold, it's important to look longer term. When looking at the yield of the 30 year treasury over the past 50 years, the average has been 6.8%- more than double of today's threshold. Why people are panicking about the effect of the market at the 3% milestone: beats me!
Zero interest rates for such a pronged period was a gift to the American people, and those who took advantage of it should be in a far better place. In your monthly payment, less went to interest and more to the principal payment. 30 year mortgages should have been remortgaged (after a careful analysis, of course) to try to lower the overall interest rate and time you ultimately pay on the loan. Cars were gotten interest free, and credit card interest was as low as we've ever seen them. So now, with the 30-year Treasury at 3% and interest rates rising, is it a time to panic? I think not. What I think is now is the time, if you have not already done so, to evaluate all of your debt and see how still-low interest rates can work to your advantage. Higher rates may slow down the housing market and large purchases, but we've got a while to go before higher interest rates start to squeeze us. So, if you need some help evaluating your refi, or are unsure of how rising interest rates may affect you, give us a call and we'll crunch the numbers with you. But don't panic... it's just another turn in the expected market cycle.