Interest rates will rise in July, but with the economy struggling and the Federal Reserve not expected to raise rates until next year, investors can’t expect the market to spike anytime soon.
Here’s what you need to know…
The average rate of interest on a 30-year mortgage is 0.75%.
That’s less than the 0.9% that the Federal Deposit Insurance Corp. (FDIC) pays on bank savings accounts, but it’s not far off from the 1% paid by some investors who hold the largest banks’ shares.
The Federal Reserve said in January that it expects to raise interest rates by 1 percentage point, but analysts say that will not necessarily trigger an increase in yields.
If rates rise, investors will likely hold on to their investments until rates rise again.
A rise in rates would be the biggest economic stimulus since the late 1970s.
Since then, rates have been largely steady, and in some years, they have risen as high as 1.75% (although it varies by state and locale).
Interest rates are calculated on the basis of a benchmark rate.
This is the rate at which interest rates can be paid on a given day for a loan of $100,000.
It’s not an exact reflection of what interest rates would have to rise to be paid, since it doesn’t take into account inflation.
The Fed also recently raised its benchmark rate to 1.50% for the first time since 2008.
The central bank raised rates twice since 2009, in the midst of the financial crisis and in the aftermath of the Great Recession.
The average interest rate on a 20-year fixed-rate mortgage is 1.64%.
This is still well below the 1.9%, but the economy is in better shape than it was in late 2008.
If yields rise, the Fed may start to raise the rate again.
The interest rate for 30- and 40-year Treasury bills is also 1.62%, the highest in more than two decades.
The rate for U.S. Treasury bonds is also higher than it has been since 2003, when rates were 0.7% for bonds and 1.4% for notes.
The average rate for the 10-year government bond has risen in each of the past three years.
The most recent interest rate hike in September was 1.25%, the most since April 2009.