Inflation concerns have pushed rates to recent highs, and that’s bad news for borrowers.
Expectations of rising inflation, which may encourage the U.S. central bank to tighten monetary policy more quickly, caused the yield on the benchmark 10-year Treasury note to hit a key psychological level of 3 percent Tuesday — for the first time since January 2014.
The yield on the 10-year note is a barometer for mortgage rates and other types of loans.
Most Americans’ largest liability is their home mortgage. Currently, the average 30-year fixed-rate is about 4.58 percent — up from 4.15 percent on Jan. 1 and significantly higher than the record low of 3.5 percent in December 2012.
“This is going to cause some pain for prospective home buyers,” said Mark Hamrick, Bankrate.com’s senior economic analyst.
While other types of borrowing, including credit cards, small business loans and home equity lines of credit, are predominantly pegged to the federal funds rate and rise or fall in step with Federal Reserve’s rate moves, those rates could head higher too, according to Ric Edelman, founder and executive chairman of Edelman Financial Services
“[Banks] will still use this as a justification for raising rates where they can,” he said.
One group that does stand to benefit from higher yields is savers.
“If these rates are sustained we can expect that banks will begin to increase the interest rates they pay on CDs and money market accounts,” Edelman said. “But it won’t happen overnight,” he added. “Those organizations are notoriously slow on raising the rates they pay.”
The current average interest rate on a savings account is still near rock bottom at only 0.18 percent, according to Bankrate, but that’s also higher than previous months.
“Slowly but surely we are seeing improvement there,” Hamrick said.