It depends on if you will be using a debt product and what kind.
Rates are set by or correlated to these:
NEVER EVER DO AN ADJUSTABLE
(These are also called “Smart Buys”, ARMs, Balloons and are some of THE WORST to ensnare you). I have fallen for 2 of them.
*Student Loans (Federal)- Congress
*Mortgages – Long Term Bonds
*HELOC (Home Equity) – Fed Funds
*Auto – Federal short term rate
*Credit Cards – Federal Funds Rate
Does this make you a bit nervous?
Our government, known for its ability to manage money so well, is playing with your life.
The borrower is SLAVE to the LENDER.
You know what that feels like, don’t you?
Enslaved to Banks and the Government.
But don’t worry, you will be out of it soon.
So, what kind of rates can one expect in the next few years?
(Almost 7% on PLUS Loans!)
15 year mortgage:
(If you are looking at 30 year Loans, you cannot afford that house!)
These usually track “Long term Bonds”. Also called Treasury Bonds. They mature in about 30 years. The US Treasury asks for money from you, me or China. US citizens own $950 Billion vs China who owns $1.2 Trillion.
Let’s keep our income scenario average ($62,000/year, monthly take home is $4300/mo). 25% of that is $1075 for a mortgage with 20% down ($40,000) on a $200,000 home (so we’re only mortgaging $160,000).
For current rates, I always check bankrate.com.
Today, a 15yr fixed mortgage is 2.902% and is very close to our $1,075 budget @ $1,086/month, assuming a Good 740 FICO score.
Now let’s compare it with a 30 year Treasury Bond:
Yep, mortgages track 30 year Treasury bonds pretty closely.
How about a refi on the remaining principle of $160,000?
Still close to the 30 year Treasury bond.
(Home Equity Lines of Credit)
These should track “Federal Funds”, or overnight loans Federal banks or other banks loan to each other. Banks are required by law to maintain a minimum of 10% of all they have currently out lending.
Made up Example: Ally bank could have lent out more than it legally can and needs 2% to come up to 10%. Ally calls around and finds that it can get a loan from the Federal government for a better rate than Chase Bank, so the Federal Government Loans it $ at the “Federal Fund” rate.
This week, that borrowing rate is 0.50%.
HELOCS are not tracking that rate at all.
5.10% on $30,000 (HELOC)
Hmmm, that seems like such a bad deal, doesn’t it? A bank can borrow for 0.50% and you pay 4.5% more and now your house is at risk.
Just like the previous example, these rates are super-low for bank to bank or bank to fed.
.25-.50% (another wink-wink, nudge-nudge insider rate)
1.49% was the lowest I could find on a 36 month.
Because you would NEVER DO MORE THAN 36 MONTHS!
In 2010, dealers were practically giving cars away. I got mine at 0% which sounds like a good deal, but think how I could have saved and invested that $ instead.
So, now we both know how things “work” and why the only debt you really should consider is a 15 mortgage that you might pay off in 7 instead.
You and I are outside the “wink and nudge” rates and are not banks.
I’m not hating on banks, it’s just interesting to me that any realised deal banks get is not passed along to consumers.
Banks are a tool and a business.
They are not your friend.
Charles Schwab. 2016. “Rising Interest Rates”. On Investing. Spring 2016. p28