Interest rates have been on the rise since the beginning of 2022. This has been great if you’re retired! We’re beginning to see rates move back toward the levels we saw from 1995 to 2005. CD rates are surprisingly high. It’s a “lender’s market.”

Much of this is a result of the Federal Reserve raising the discount rate. The rest of it is due to inflation creeping up over the past three years. The future problem with that “interest rate driver” is that inflation has declined substantially this year.

Here’s the flip side of rising rates – if you are buying a new home, you’re not going to be able to obtain a 2.75% mortgage like you could in 2021! Mortgage Rates have gone back to the levels of twenty years ago. Keep in mind, those rates are still a far cry from 1975 to 1995!

Our first mortgage was 8.125% in 1976 and we got a steal! We qualified for “bond money” as first-time home buyers. The market rates for mortgages were around 14%!

Today’s interest rates aren’t likely to persist. Here’s an interesting chart from the Treasury which shows today’s Yield Curve. This shows you the rate you will be credited, depending on how long you are willing to tie up your money. If you invest money for six months or less, you’ll earn between 5.0 to 5.5%. Notice what happens after that – as time periods increase to 1 year, 2 years, 3 years, your rate goes down precipitously! A ten-year Treasury will “only” pay a little over 4%. Granted, that’s four times what they were paying not long ago.

What’s the most important take away from these interest rate changes? It is critical to try to reduce or eliminate non-mortgage debt as soon as is practical. The interest rates on credit cards, lines of credit and “retail” car loans are going to be increasing – and in some instances, substantially! These rates are based on today’s environment and more importantly, today’s expectations. The market (meaning human beings acting collectively) thinks that rates are going to moderate. The market doesn’t see rates going back to the sweetheart days of three years ago. It looks like it’s going to be more profitable to be a lender of your funds than a borrower of someone else’s funds for the next few years.

Rick Adkins, CFP®, ChFC, MBA

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