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What Could Rising Rates Mean To You?

So far this year, 10-year Treasury yields have risen from about 2.5% to 3%. While that might not seem like much, it is a 20% increase from the start of the year. If rates continue to climb, the impact could extend into many areas of your financial picture.

Mortgages

If you’re looking to get a new mortgage through a refinance or to use for a new home purchase, you’ll likely find that rates have been going up along with the 10-year Treasury. A ½% increase in interest rates could cost you an extra $26,000 in interest payments over the course of a 30-year mortgage.

If you have a home equity line of credit, you’re likely seeing the interest rate increase every few months. While small changes now might be of a minimal impact, continued rising rates could make this once inexpensive loan a burden for you. Consider speaking with your financial advisor and/or mortgage broker to determine if a refinance might be in your best interest.

Other Debt

Credit cards always seem happy to raise rates as soon as they can. If you have revolving debt, you could see sharp increases in your monthly payments.

Car companies will likely keep auto financing as cheap as possible for as long as possible to help sell cars. Eventually, even they will need to end low-cost financing. If you’re considering a car purchase, you might want to look at buying one sooner than later.

Savings & CDs

For the past ten years, I’ve heard people lamenting the low rates they’re receiving from banks. While I’ve been quick to point out that it’s typically better to be getting zero interest on a savings account in return for historically low mortgage rates, clients still like to see their banks paying them something. The good news is that rates on savings, money markets, and CDs have been increasing.

Investments

You’ll find that bond values generally move inversely to interest rate changes. This means that a decrease in interest rates could increase the value of bonds and that an increase in interest rates could drive down the value of bonds.

Some investors who hold individual bonds will want to keep their bonds intact. Feeling that a solvent company is expected to provide a return of principal upon maturity, they may not be concerned about the bond’s change in value while they hold it.

Other investors who are concerned about a loss in value may look to invest in shorter-term bonds. This is because short-term bonds are typically less volatile if all other factors are the same. A shorter maturity may also allow the investor use their proceeds to buy new bonds with higher interest rates thus increasing his/her income.

Fearful of losing any value in bonds and able to withstand a potential decrease in income, some investors may opt to move some of their bond portfolio to cash. With increasing yields and guaranteed principal, certificates of deposit are beginning to look more attractive with each rate increase.

When it comes to stocks, some companies profit with higher rates while others struggle with increased lending costs. Historically, financial institutions have done better in rising-rate conditions as they stand to make more money from the higher rates they charge their customers. Other companies that rely heavily on issuing debt don’t do as well because they’re now paying more on their outstanding debt. Other companies that often struggle are ones that pay high dividend yields. When rates are low, the high yield paid by stocks can seem to be worth taking the added risk. As rates rise, there’s less benefit to the investor for taking the added risk of stock ownership over owning a US Treasury, corporate bond, or even a CD.

All performance referenced is historical and is no guarantee of future results. Stock investing may involve risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price. No strategy guarantees performance or protects against a loss.

The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual. Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.

Events & Sponsorships

Our 7th Annual Shred Day was a success. We helped our neighbors shred and recycle 3,600 pounds of personal documents.

FreeState Justice’s Jazz Brunch

Saturday, June 2nd from 11am-2pm

We’re sponsoring FreeState’s Jazz Brunch. Learn more about the event or buy tickets at Jazz Brunch Event Page.

Away from the Office

Friday, May 4th & Monday, May 7th

Woody will be out of the office. Please contact Debbie atdebbie@partnershipwm.com or at 410-732-2633 for anything urgent.

Monday, May 28th

Our office & the markets will be closed for Memorial Day. Have a wonderful weekend!

We are always accepting donations for the local animal shelters– toys, tennis balls, collars, leashes, food, cat litter, cardboard trays, office supplies, cleaning supplies, towels, mats, washcloths, etc. We will accept donations Monday-Friday between 9am & 5pm.

Family

Elise took her first train ride this month. She (and her ponies) had SO much fun (her words). She stared out the window for nearly half the trip to New York City and pointed out the cities and “oceans” to me. After she settled from the excitement, she colored and asked me to keep her posted on anything exciting to see.

When we arrived at Penn Station, I treated Elise to a cookie the size of her head. Good think she got all that sugar as she needed the energy for our mile walk through the city to Aunt Milea and Uncle Justin’s apartment.

It was a great daddy-daughter trip to and through NYC.

We returned home with Heidi by car, and Elise was quick to express her disappointment that we were driving. I’m glad I have someone else who likes travel by train as much as I do.

I hope you enjoyed this month’s newsletter.

 

Best Wishes,

Woody Derricks, CFP®, ADPA®

President

CA Insurance License #0C40217

 

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