If you follow the national business news, you are likely getting mixed messages about the state of the economy. While never very reassuring, pundits’ opinions on the stock market and the country’s economic state are changing as frequently as the weather.
But there’s one area that’s been constant for some time now: rising interest rates. If you’re thinking of taking out a mortgage, or any other large loan, in the near future, you might be waiting until those rates start going down again.
Here’s why that might not be the best idea.
Interest rates will continue to rise throughout 2018
Experts predict that interest rates on financial products will continue to increase throughout the year. There are several factors triggering this rise, none of which are likely to be resolved anytime soon. Whether you’re interested in taking out a personal loan or a second mortgage, 2018 may not be a very good year for borrowers.
It’s not looking too great for those who are looking to take out short-term loans either. The U.S. central bank raised short-term interest rates a total of three times in 2017, and that trend is expected to continue. Experts claim 2018 will see an additional three interest rate hikes, each being 0.25%. If you need to borrow money from TruMark Financial, it’s best to consider your plans sooner rather than later to ensure you can lock in before rates get higher.
The inflation factor
Unemployment rates may be down across the country, but wage growth continues to crawl at an almost nonexistent pace. This leads to limited price growth, which keeps the inflation rate stagnant. However, the feds are expecting all of this to change in the coming year. They expect wage growth to finally kick off and set in motion an uptick in inflation and price growth.
The government wants to stay ahead of any surge in inflation. It does so by increasing interest rates even before there is clear evidence of an inflation peak. In fact, just last month, the feds raised interest rates on short-term loans yet again, citing an inflation scare at the beginning of February as the primary factor behind their decision.
Financial institutions and credit card companies pattern their own interest rates after the government’s rate. For this reason, it’s best to work on aggressively paying down outstanding debt you have before you’re hit with increased interest rates.
Government deficits and tax cuts
Long-term interest rates have been rising since December. This is largely due to the growing government deficit linked to recent tax cuts. The pending two-year budget plan will put the government even deeper into the red and likely cause those rates to climb even higher.
In short, this trend of rising rates will not become history for a long while.
Mortgage interest rates are now at an all-time high; they are currently close to 4.6% and are up more than 20% from a year ago.
There are multiple factors driving this increase, including the administration’s proposed tariffs on steel and aluminum and the associated concerns over the U.S. trade market.
For the most part, though, mortgage interest rates are based on the 10-year Treasury yield. When bond yields rise, so do mortgage rates. The recent tax overhaul caused investors to favor stocks over bonds, and consequently mortgage rates have been climbing since the tax plan was first introduced in September.
Some experts are actually predicting a turnaround for mortgages in 2018. They are hopeful that the expected volatility in the yield curve will trigger a similar curve for mortgages, possibly even causing them to dip below 4% sometime this year. However, all agree that by year’s end, the mortgage rate will settle at a stable 4.5%.
No one can be certain of anything, though. And waiting until the rates drop might prove to be pointless. In fact, you might even end up paying a higher rate because of that delay.
The good news
Take heart; it’s not all doomsday forecasts on the economic front.
Greg McBride, Bankrate’s chief financial analyst, predicts a great year for returns on savings. He claims that 2018 will be beneficial for all savings accounts, and especially for CD holders, with an average one-year CD yielding a 0.7% return by the end of 2018.
If you’ve been thinking about opening a share certificate or other ways to grow your savings, talk with TruMark Financial, and start putting your plan into action!
What it means for you
Let’s review the practical steps you can take in this economic environment:
- If you’re thinking of taking out a mortgage or another long-term loan, don’t wait for rates to decrease; it isn’t likely to happen anytime soon.
- Try to pay off your debt at a quicker pace than you’ve been doing until now to avoid getting hit with rising interest rates.
- 2018 is a great time to increase your savings and to open a share certificate.
Volatile economy got you stressed? No worries! At TruMark Financial, we’re always here to help you through any financial turn.