With gas prices rising and wholesale prices rising, it seems like interest rates will be rising before long as well and that could take a big bite out of your wallet.
After months and months of the lowest interest rates in 45 years, rates are starting to rise. And that’s causing some concern in the financial markets where traders are worried about everything from corporate profits to the cost of your mortgage.
Let’s start with how rising interest rates affect mortgages and home equity loans. First, if your loan is a fixed-rate mortgage, your payment won’t change at all. Arms are adjustable rate mortgages, or variable loans and if your loan is scheduled to adjust and rates have risen, your payments will go up. How much? On a $100,000 loan, your cost will go up about $40 each time interest rates rise a half point.
When it comes to credit cards, credit card companies can boost the interest rate you’re paying with 15 days written notice, that’s the almost unintelligible slip of paper that comes in the mail that you’ve probably tossed. If your interest rate goes up, then your monthly cost goes up, unless your’re smart enough to pay off your credit card bill at the end of the month.
Now, let’s take a look at how rising interest rates affect your investments. Generally, when interest rates go up, the stock market goes down. And we’ve seen the stock market do just that over the last few weeks. Why? Traders are worried that higher interest rates could mean a higher cost of doing business, which would mean lower profits. On the other hand, bonds follow interest rates, so rising interest rates mean bondholders, mostly seniors living on a fixed income, could benefit.
Of course, a strong real estate market has helped prop up the country during the last few years. Will rising interest rates spell the end of the hot real estate market we’ve experienced in Chicago since the late 1990s?
Probably not, since the economy is starting to pick up steam and interest rates are still historically low, I’ll leave you with this thought. Back in 1989, when my husband Sam and I bought our first house, the interest rate we paid was over 11 percent.
Copyright © 2004, WGN-TV
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