They have missed the four-decade low for 30-year mortgages of 5.21 percent set in June 2003, but refinancing at rates just north of 6 percent would still save money.
Savers who have suffered through extremely low rates on their bank certificates of deposits will benefit in a rising rate world.
Greg McBride, financial analysts at Bankrate.com, a personal finances Web site, said rates on five-year certificates of deposit, now at a national average of 3.13 percent, are up significantly from their low of 2.45 percent hit last July.
Analysts advise that savers ought to continue to favor shorter-term maturities of a year or less over the next six to 12 months so that they can invest in longer-term CDs as rates rise.
"There is no incentive to lock up multiyear maturities with interest rates still at such low levels," McBride said.
Consumers with credit-card debt, auto loans and most home-equity loans still have a bit of a reprieve on higher interest rates because this debt is generally tied to the Fed's federal-funds rate.
Analysts advise paying off as much of this debt as possible before the Fed ratchets rates. Commercial banks' prime lending rate, the benchmark for millions of short-term consumer and business loans, is still at 4 percent, but it will rise in lockstep with changes in the federal-funds rate.
To predict how high rates will go, analysts pointed to the Fed's own statement Tuesday, which said that the central bank believes with inflation low and plenty of slack in the economy, any rate increases are likely "to be measured."
Many private economists interpreted that as meaning gradual quarter-point rate hikes that will start in August and then occur roughly at every other meeting over the next two or three years.
That could take the 1-percent funds rate up to 2 percent by the summer of 2005 and 3 percent by the summer of 2006. That's a far more gradual move than the 3-percentage-point hike in the funds rate that the Fed engineered over a 12-month period in 1994, which shocked financial markets at home and abroad, pushing the Mexican peso into crisis and driving debt problems of Orange County, Calif.
No one is predicting that type of calamity this time. But analysts warn there could be fallout from rising rates in such areas as housing sales, which have been at record levels with super low mortgage rates, and in auto sales, where popular zero-rate financing incentives have been driving sales.
"These transitions rarely happen smoothly, but the Fed does have room to go slowly because inflation is so low," said Mark Zandi, chief economist at Economy.com. |
