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Projected Interest Rates in 5 Years: How Much Will Rates Rise?

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Projected Interest Rates in 5 Years

It's always important to stay on top of financial trends, especially when it comes to interest rates. Are you also wondering what the projected interest rates will be in the next five years? Understanding the future of interest rates can help you make informed decisions when it comes to investments, mortgages, and other financial choices. Unless you have a crystal ball that can predict the future, it's impossible to know how much interest rates will rise in the coming five years.

Projected Interest Rates in 5 Years

Pent-up demand, especially for travel, means inadequate supply to chains still rocked by COVID-19, but Russia's invasion of Ukraine and energy insecurity have raised oil and gas prices. It implies central bankers are uncertain how successful monetary tightening will be against many mitigating factors, with rate rises potentially adding pain without resolving rising prices. Interest rates are projected to rise in the near term as policymakers try to ward off 40-year-high inflation, but they are expected to peak soon thanks to expectations of a recession in the US.

According to the OECD forecasts as of February 2023, inflation was expected to continue to fall gradually over the next 18 months, hitting 5.3% by the end of this year and falling to 51% by the end of 2023. Capital Economics predicted inflation to sit at 2.5% by the end of 2023, and between 2026 and 2031, while the CBO expected inflation to average 2.4% between 2028 and 2030.

Interest rates are a crucial factor in the financial markets that have wide-ranging ramifications for the economy. The US Federal Reserve (Fed) sets the Federal Funds Rate (FFR), which influences demand for bonds, prime rates, and the overall economy. Even slight variations in interest rates can have significant effects on the stock market and investment portfolios, affecting both buyers and sellers.

The Federal Reserve is responsible for setting the target range for the federal funds rate, which is the interest rate at which banks lend to each other overnight. This rate has a significant impact on the overall economy, influencing borrowing costs for individuals and businesses, as well as affecting the value of the dollar.

The predictions made by the various analysts and banks provide insight into what the financial markets anticipate for interest rates over the next few years. Based on recent data, Trading Economics predicts a rise to 5% in 2023 before falling back down to 4.25% in 2024 and 3.25% in 2025. Morningstar analyst Preston Caldwell, on the other hand, is skeptical that the Fed will continue raising rates throughout 2023 and has predicted lower rates of 3.75%-4%.

ING predicts rates to range from 5% in the second quarter of 2023, rising to 5.5% in the third quarter, and then falling back to 5% in the final quarter of the year. They also predict interest rates ranging between 3% and 4.25% in 2024, staying at 3% by the end of 2025. The differences in these forecasts may be attributed to the different methodologies and models used to generate them.

Factors That Could Influence Interest Rates in Five Years

The US, like other major Western economies, has enjoyed an unparalleled period of low price and interest rate volatility. The current bout of price rises means investors could need to reassess how they allocate their portfolios. The FFR was below 2% in the 1950s, amid postwar stimulus and income growth across the US. The rate saw-sawed over a 20-year period, rising and falling between 3% and 10% during the 1960s and 1970s before skyrocketing inflation that exceeded 13% in 1980 forced rates to a record high of 19.1%.

As inflation was brought under control, the FFR hovered around 5% through the 90s, before recessions in 2001 and 2008 forced them down to a floor, keeping rates low until 2016. The Covid-19 pandemic imposed another cut to almost 0%, with recent inflationary pressures forcing the Fed to begin tightening policy. The Fed increased rates seven times in 2022 and by another 25 bps in February 2023, bringing it to 4.5%-4.75%, the highest since the aftermath of the 2007-2008 financial crisis.

There are several key factors that could influence interest rates over the next five years. One major factor is inflation, which is currently at historic highs due to a mix of demand and supply factors. The Fed will need to monitor inflation closely and determine whether monetary tightening will be effective in addressing the underlying problem of high prices. In addition to inflation, the strength of the US dollar will also be a significant factor.

While the dollar has enjoyed resilience due to its status as a safe haven currency and the Fed's hawkish monetary policy, its strength has started to slow as monetary tightening has slowed. The possibility of a recession also looms large over interest rate predictions. While the US experienced a contraction in GDP in the second quarter of 2022, GDP has since rebounded. However, if a recession were to occur, the Fed may need to halt its regimen of rate hikes to avoid putting further strain on growth.

Finally, the specter of stagflation could also make policymakers' decisions even more difficult. Stagflation, which is a combination of stagnant economic growth and high inflation, could result in a complex policy response that could further impact interest rates. Overall, while interest rate predictions over the next five years may be subject to change based on a variety of factors, monitoring inflation, the strength of the US dollar, the possibility of a recession, and the potential for stagflation will all be key for policymakers and investors alike.

Mortgage Interest Rate Projections for 5 Years

Projected Interest Rates in 5 Years
Image Source: FreeImages‍

If you're planning on mortgaging your home at least until age 55 and possibly beyond, you should start looking into how much interest rates are likely to go up in the coming decade. If you don't already understand how much interest rates affect your wallet, this article will explain everything you need to know about projected interest rates in the next five years and what that means for you as a borrower.

Mortgage interest rates determine the interest you pay on your home loan. When you get your house loan approved, the lender will usually project what interest rates are likely to be and then you can decide if you want to go with that interest rate or some other available option. But when you ask what is the interest rate, you're not just looking at what rate is listed on the contract, you're also taking into account what rate is likely to go up in the future and what will happen to rates if new laws are passed.

Mortgage interest rates follow the same pattern as the stock market does, with periods of high profitability followed by periods of low profitability. As was the case with stocks, homeowners who take out a mortgage are at a particular advantage, as they can lock in a higher rate of return by waiting until the market is profitable again. If the market performs poorly for a prolonged period of time, homeowners are stuck with high-interest rates. That's not good for you or your house price.

A number of factors can affect your mortgage interest rate, including the total amount of your mortgage loan, the mortgage terms, and the health of the housing market. According to algorithm-based forecasting service Longforecast's interest rate projections, the 30-year mortgage rate in the United States, which is strongly tied to the Fed's base rate, is forecasted to reach 17.81% by November 2026, a significant increase from the present rate of roughly 7.04%.

Mortgage Interest Rate Predictions for 2023

According to Longforecast, the 30 Year Mortgage Rate will continue to rise further in 2023. The 30 Year Mortgage Rate forecast at the end of the year is projected to be 11.87%.

30-Year Mortgage Interest Rate Forecast for January 2023

  • Maximum interest rate 8.32%, minimum 7.62%.
  • The average for the month is 7.91%.
  • The 30 Year Mortgage Rate forecast at the end of the month is 8.08%.

30-Year Mortgage Interest Rate Forecast for February 2023

  • Maximum interest rate 8.53%, minimum 8.03%.
  • The average for the month is 8.23%.
  • The 30 Year Mortgage Rate forecast at the end of the month is 8.28%.

30-Year Mortgage Interest Rate Forecast for March 2023

  • Maximum interest rate 8.66%, minimum 8.16%.
  • The average for the month 8.38%.
  • The 30 Year Mortgage Rate forecast at the end of the month 8.41%.

30-Year Mortgage Interest Rate Forecast for April 2023

  • Maximum interest rate 9.18%, minimum 8.41%.
  • The average for the month 8.73%.
  • The 30 Year Mortgage Rate forecast at the end of the month 8.91%.

30-Year Mortgage Interest Rate Forecast for May 2023

  • Maximum interest rate 9.18%, minimum 8.64%.
  • The average for the month 8.91%.
  • The 30 Year Mortgage Rate forecast at the end of the month 8.91%.

30-Year Mortgage Interest Rate Forecast for June 2023

  • Maximum interest rate 9.72%, minimum 8.91%.
  • The average for the month 9.25%.
  • The 30 Year Mortgage Rate forecast at the end of the month 9.44%.

30-Year Mortgage Interest Rate Forecast for July 2023

  • Maximum interest rate 10.31%, minimum 9.44%.
  • The average for the month 9.80%.
  • The 30 Year Mortgage Rate forecast at the end of the month 10.01%.

30-Year Mortgage Interest Rate Forecast for August 2023

  • Maximum interest rate 10.92%, minimum 10.01%.
  • The average for the month 10.39%.
  • The 30 Year Mortgage Rate forecast at the end of the month 10.60%.

30-Year Mortgage Interest Rate Forecast for September 2023

  • Maximum interest rate 11.58%, minimum 10.60%.
  • The average for the month 11.01%.
  • The 30 Year Mortgage Rate forecast at the end of the month 11.24%.

30-Year Mortgage Interest Rate Forecast for October 2023

  • Maximum interest rate 12.03%, minimum 11.24%.
  • The average for the month 11.55%.
  • The 30 Year Mortgage Rate forecast at the end of the month 11.68%.

30-Year Mortgage Interest Rate Forecast for November 2023

  • Maximum interest rate 12.51%, minimum 11.68%.
  • The average for the month 12.01%.
  • The 30 Year Mortgage Rate forecast at the end of the month 12.15%.

30-Year Mortgage Interest Rate Forecast for December 2023

  • Maximum interest rate 12.23%, minimum 11.51%.
  • The average for the month 11.94%.
  • The 30 Year Mortgage Rate forecast at the end of the month 11.87%.

Also Read: Mortgage Interest Rates Forecast 2022 & 2023

Mortgage Interest Rate Projected Forecast 2024

According to Longforecast, the 30 Year Mortgage Rate will continue to rise further in 2024. The 30 Year Mortgage Rate forecast at the end of the year is projected to be 13.9%.

Month Low-High Close
Jan-24 10.05-10.97 10.65
Feb-24 10.14-10.76 10.45
Mar-24 10.33-10.97 10.65
Apr-24 10.65-11.31 10.98
May-24 10.98-11.66 11.32
Jun-24 10.79-11.45 11.12
Jul-24 10.99-11.67 11.33
Aug-24 11.33-12.22 11.86
Sep-24 11.86-12.94 12.56
Oct-24 12.46-13.24 12.85
Nov-24 12.65-13.43 13.04
Dec-24 12.79-13.59 13.19

30-Year Mortgage Interest Rate Projected Forecast 2025

The 30 Year Mortgage Rate will continue to rise further in 2025. The 30 Year Mortgage Rate forecast at the end of the year is projected to be 16.25%.

Month Low-High Close
Jan-2025 15.37-16.33 15.85
Feb-2025 15.05-15.99 15.52
Mar-2025 15.26-16.20 15.73
Apr-2025 15.16-16.10 15.63
May-2025 15.36-16.30 15.83
Jun-2025 15.53-16.49 16.01
Jul-2025 15.11-16.05 15.58
Aug-2025 15.36-16.30 15.83
Sep-2025 15.58-16.54 16.06
Oct-2025 15.32-16.26 15.79
Nov-2025 15.60-16.56 16.08
Dec-2025 15.76-16.74 16.25

Mortgage Interest Rate Projected Forecast 2026

The 30 Year Mortgage Rate will continue to rise further in 2026. The 30 Year Mortgage Rate forecast at the end of the year is projected to be 17.81%.

Month Low-High Close
Jan-2026 15.72-16.70 16.21
Feb-2026 16.21-17.25 16.75
Mar-2026 16.30-17.30 16.8
Apr-2026 16.11-17.11 16.61
May-2026 16.40-17.42 16.91
Jun-2026 16.28-17.28 16.78
Jul-2026 16.57-17.59 17.08
Aug-2026 16.75-17.79 17.27
Sep-2026 17.27-18.41 17.87
Oct-2026 17.71-18.81 18.26
Nov-2026 17.28-18.34 17.81

It should be noted that analysts' and algorithm-based projections can be incorrect. Interest rate estimates should not be utilized in place of your own study. Always conduct your own research. Furthermore, never invest or trade money that you cannot afford to lose.

Why Should You Care About Projection of Interest Rates?

The higher the interest rate, the less attractive the opportunity to borrow money at that rate is for you as a homebuyer. As a result, it could make more sense to borrow at a lower rate, especially if you have a modest amount to spend on a home and are looking for a low-interest loan. If you are running behind on payments and have a limited amount of equity, a higher interest rate could make you borrow money from your workers' compensation fund or a government program that provides short-term loans.

It could also mean higher insurance costs or a higher cost of living once you move in. If you have money to invest and would instead put that money in something that earns more interest than a mortgage, you should know that rates on savings accounts and mutual funds are likely to go up as well, not down.

Interest Rates and Their Role in Financial Markets

The Fed sets the FFR, the base interest rate that filters through to banks, affecting demand for bonds and more broadly the economy and stocks. The process begins when the Fed sets the FFR at the Federal Open Market Committee (FOMC) meeting, eight of which occur every year. Those decisions filter through to the prime rate, the basic interest rate banks charge to credit-worthy customers. A hike in the FFR will see the base prime rate rise, affecting the cost of loans and mortgages.

The rising cost of servicing loans takes more discretionary income out of consumers and businesses, reducing demand and reigning in price increases. For stocks, that could mean companies and stocks dependent on consumer spending, like the retail and hospitality sectors, face headwinds. Growth stocks, which rely on lending and capital, could also suffer as investors look for value in profitable companies to ride out market volatility and a downturn.

Mechanically, interest rate rises also hit the value of bonds. When interest rates rise, the yield on a bond becomes less valuable, as it garners less interest than the prevailing base rate, forcing a sell-off. This is particularly true for longer-term interest rates, as the discrepancy is magnified over time. Likewise, fixed-income securities lose their value with rises as the cost of not owning other interest-rate tracking assets increases.

How Much Interest Will You Pay?

This is one of the most important factors to keep in mind when you're looking at projected interest rates. It is not just the price of the mortgage that is important – it is the interest rate you pay on every dollar you borrow. If you are refinancing an existing loan, the amount you will be paying will depend on your current interest rate and the total amount of your loan. If you are buying a new house, your interest rate will be lower than if you are refinancing an existing home as that is the type of loan we refer to as a ” cash-out refinance.”

What Are Other Factors That Affect Your Payment?

When you compare interest rates for different cities, you are ignoring other factors that could affect your monthly payment. For example, if you are refinancing an existing loan and are in a city where house prices are low, you will pay less interest than if you were in a city where house prices are higher. These other factors can include taxes, insurance, building costs, and utilities.

Conclusion

When it comes to the future of mortgage interest, we don't know exactly what will happen. That is why it is important to get a feel for what the projected rates are so you can plan ahead and decide if any of these rates are right for you and your financial situation. If you are currently working with a lender and are interested in switching providers, you should know that most lenders are required to give you 30 days' notice before changing rates. Even then, you will only be given a 25% discount on the new rate if you want it.

Sources:

  • https://data.oecd.org/price/inflation-forecast.htm
  • https://capital.com/projected-interest-rates-in-5-years
  • https://longforecast.com/mortgage-interest-rates-forecast-2017-2018-2019-2020-2021-30-year-15-year
  • https://www.noradarealestate.com/blog/mortgage-interest-rates-forecast/

What Happens When Interest Rates Rise: Causes & Effects?

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What Happens When Interest Rates Rise?

When it comes to the economy, inflation and interest rates are two crucial concepts that are intertwined with each other. Interest rates refer to the cost of borrowing money, while inflation is the increase in prices of goods and services in an economy over time. One may wonder why interest rates rise with inflation. Let's delve deeper into the reasons behind this relationship.

Interest rates are influenced by a variety of factors, including inflation, economic growth, government policy, and global events. Inflation is one of the main drivers of rising interest rates because it erodes the purchasing power of money over time, and lenders require higher interest rates to compensate for the reduced value of the money they lend out.

Similarly, when economic growth is strong, demand for credit increases, which can push up interest rates. Government policy, such as changes in monetary policy or fiscal policy, can also impact interest rates. Finally, global events such as geopolitical tensions or changes in the international economic landscape can lead to changes in interest rates. Understanding these factors and their interactions can help investors and policymakers predict and respond to changes in interest rates.

Why do Interest Rates Rise with Inflation?

The correlation between interest rates and inflation has been well-established in economics. As inflation increases, the central bank of a country often raises interest rates to tackle the economic impact of rising prices. Raising interest rates helps to reduce inflation by decreasing demand for goods and services, which in turn reduces their prices. Additionally, higher interest rates make saving more attractive, reducing consumer spending and further lowering demand and inflationary pressures.

Here are some of the main reasons why interest rates rise with inflation:

To curb inflation: When inflation rises, the central bank may increase interest rates to control it. Higher interest rates lead to an increase in the cost of borrowing money, which in turn can reduce consumer spending and business investments. This decrease in spending and investment lowers the demand for goods and services, which ultimately helps to bring down prices and control inflation.

To attract foreign investment: When inflation rises, the currency of a country loses its value, making it less attractive to foreign investors. To attract foreign investment and stabilize the currency, the central bank may raise interest rates. This makes investments in the country more appealing, leading to increased foreign investment and an economic boost.

To maintain the value of bonds: When inflation rises, the future value of bond interest payments decreases, reducing the value of bonds. To keep the value of bonds stable, the central bank may raise interest rates. This leads to an increase in the future value of interest payments, which helps to stabilize the bond market.

To prevent a currency crisis: High inflation can lead to a currency crisis, where the value of a country's currency decreases rapidly. To avoid a currency crisis, the central bank may raise interest rates to attract foreign investment and stabilize the currency. Higher interest rates make the currency more valuable, thereby making it more attractive to foreign investors.

To encourage savings: When inflation rises, the value of money decreases over time. To encourage people to save money and maintain the value of their savings, the central bank may raise interest rates. Higher interest rates provide a higher return on savings, making it more attractive for people to save their money.

The relationship between interest rates and inflation is a complex one. As inflation rises, the central bank of a country may increase interest rates to manage the economic impact of rising prices. Higher interest rates can help reduce consumer spending, attract foreign investment, maintain the value of bonds, prevent a currency crisis, and encourage savings. Understanding this relationship is vital for investors, policymakers, and anyone who wants to make informed decisions about their finances.

What Happens When Interest Rates Rise?

The impact of interest rates on various aspects of the economy, including financing costs, expenditures, savings, investments, and inflation, is substantial. The effects of a rise in interest rates can be far-reaching and can affect both individuals and enterprises. Here are some of the main consequences of rising interest rates:

  1. Higher borrowing costs: When interest rates rise, borrowing money becomes more expensive. This can increase the cost of loans and credit for individuals and businesses. For instance, if you have a mortgage with a variable interest rate, a rise in interest rates can result in higher monthly payments. Similarly, businesses that rely on loans to finance their operations may incur higher financing costs, which can have a negative effect on their profitability.
  2. Decreased consumer spending: When interest rates rise, consumer spending can decline. Higher interest rates make borrowing money more costly, which can reduce a person's purchasing power. This, in turn, can reduce demand for products and services, thereby slowing economic growth.
  3. Lower inflation: One of the primary reasons central banks raise interest rates is to control inflation. When interest rates increase, the supply of money in the economy may decrease. This, in turn, can reduce inflation by reducing economic growth and demand for products and services.
  4. Increased savings: Increasing interest rates can make saving more attractive, leading to greater savings. Higher interest rates allow individuals to earn a greater return on their savings, which can motivate them to save more. This can result in a decline in expenditure and a decrease in the demand for products and services.
  5. Lower bond prices: When interest rates increase, the value of existing bonds decreases. This is due to the fact that investors can earn a greater return on bonds with higher interest rates. Therefore, existing bond prices must fall to make them more attractive to investors.
  6. Decreased business investment: When financing costs increase, it can result in a decline in business investment. Higher interest rates mean that businesses must pay more to borrow money, which can reduce their profits and reduce investment. This can then slow economic development and result in employment losses.
  7. Stronger currency: When interest rates increase, a country's currency may become more attractive to foreign investors. Investors can earn a greater return on their investments when interest rates are higher, which can increase demand for the country's currency. This can then result in a strengthened currency and affordable imports for consumers.

To sum up, when interest rates rise, they can have a significant impact on the economy. Higher interest rates can result in increased financing costs, which means it can become more expensive for individuals and businesses to borrow money. This can lead to a decrease in consumer spending, as higher borrowing costs can reduce people's purchasing power.

However, higher interest rates can also encourage people to save more, as they can earn more on their savings. This can lead to a reduction in spending and demand for goods and services. Moreover, when interest rates rise, the value of existing bonds decreases, which can impact investors.

In addition, higher borrowing costs can reduce profits for businesses and lead to a decrease in investment, which can slow down economic growth and lead to job losses. Finally, a stronger currency can result from higher interest rates, which can make imports cheaper for consumers. Therefore, understanding how interest rates impact the economy is crucial for individuals and businesses to make informed financial and investment decisions.

Conclusion: Does Raising Interest Rates Help the Economy?

Raising interest rates can help the economy by controlling inflation, encouraging savings, stabilizing the currency, and promoting long-term investment. Higher interest rates can help prevent inflation from getting out of control by reducing demand for goods and services. They can also encourage individuals and businesses to save more, which can lead to increased capital available for investment and stimulate economic growth. Additionally, higher interest rates can lead to an appreciation of the currency, which can reduce the trade deficit.

It's worth noting that while raising interest rates can have positive effects on the economy, it can also have negative impacts, especially in the short term. For example, higher interest rates can increase the cost of borrowing, which can reduce consumer spending and business investment. This can lead to a slowdown in economic growth and potentially even a recession.

In addition, higher interest rates can lead to a stronger currency, which can make exports more expensive and hurt the competitiveness of domestic industries that rely on exports. Therefore, policymakers must carefully consider the potential short-term and long-term impacts of raising interest rates before making any decisions. It's crucial to strike a balance between controlling inflation and stimulating economic growth to ensure a healthy and stable economy.

New Record Low for Mortgage Loans (Again!)

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Long-term mortgage rates continued to move lower this week, with a 15-year fixed-rate mortgage falling to a record low for the second consecutive week.

The weekly rate report from Freddie Mac says 30-year fixed-rate mortgages averaged 3.35 percent in the week ending May 2, down from 3.4 percent last week. The average rate on a 30-year fixed rate loan is just above its all-time low of 3.31 percent set in November.

A 15-year fixed rate loan fell to an average of 2.56 percent, on par with average rates for both one-year and five-year adjustable-rate mortgages.

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The Real Estate Indicator Screaming "Buy"

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Buy Real Estate NowI just locked down a 2.875% interest rate, fixed for the 15-year term of the mortgage. No points. With rates like these, I find myself rethinking the idea that I want to pay off my mortgage.

I can do a lot better than 2.875% investing the money. If I just sock it away in gold, I bet I’ll come out way ahead. Finding investments that clear such a low hurdle is not that difficult.

Right now is a great time to do this, if looked at from a historical perspective. The 10-year Treasury rate is 1.64% as I write. That is what investors are willing to accept to lend money to the US Treasury for a 10-year term. It seems absolutely crazy. But the Treasury rate we see is something of a forced smile.

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Warren Buffet on Best Real Estate Investment

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Recently on CNBC, Warren Buffett stated that he would buy “millions” of single family homes if he had the means to manage them.  The more interesting comment he made during his interview was that houses will be a better investment than stocks over the long term.  A powerful comment coming from a person who built his business (and fortune) selling securities.  [Watch the video.]

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