Lisa Simpson
Apr 30,2010
In: Finance

Prospects of Increased Interest Rates

Prospects of increased interest rates.

The prospects of the economy at last brighten. However, that does not spell good news for the consumers. They are now facing a new burden of increasing interest rates.

Experts say the rising rates are inevitable, as the nation’s debt balloons beyond proportion. There are renewed prospects of inflation as the economy flounders slowly on the recovery track.

This would definitely come as a shock to consumers, who had been used to very low borrowing costs. According to Bill Gross, who has an investment firm by the name of Pimco, says, “Americans have assumed the roller coaster goes one way. “It’s been a great thrill as rates descended, but now we face an extended climb.”

The effect would be first felt on the real estate market. It may be pointed out here that the market had slowly begun to recover from the deep recession. The rate for mortgage had increased by half point. It had become 5.31 the highest that the market has seen since last year.

Economist Christopher J. Mayer says, “Mortgage rates are unlikely to go lower than they are now, and if they go higher, we’re likely to see a reversal of the gains in the housing market. It’s a really big risk.” In fact, the Fed Reserve has also put a brake on the $1.25 trillion program for buying mortgage debt. This has also sent interest rates north.
The Mortgage Bankers Association expects that the hike would continue. It would be 6% by end 2010. The high rates will also have an impact on the use of credit cards. It may be pointed out that the average rate of interest on credit cards reached an all-time high of 14.26 % in February. This is the highest ever since ’01. In the last half of ’08, it was 12.03 %. This increase amounted to $200 of interest. The research director of a financial research company, TowerGroup, says that the losses from default of credit cards have increased. Issuers may further increase rates to as much as 17 %. Moroney said that, “The banks don’t have a lot of pricing options,” Mr. Moroney said. “They’re targeting people who carry a balance from month to month.” Likewise, it’s become very expensive to take car loans as well. Most auto finance companies have hiked rates from 3.26 % to 4.72 %.