Thoughts on interest rates

[jd2005]

Happy I found this board. I was missing MSN's money board.

Quick question...what are your thoughts on when interest rates will begin rising again? I ask because I have car note at fixed 4.99% with $11k and HELOC with $30k but with a 4.3% variable rate. My current plan is to pay off HELOC 1st (currently budgeted to pay off by August 2012) and then tackle my car loan (budgeted to pay off by July 2013).

Although the math may not make sense right now, I am just a creature that likes to know what my payment will be. I like the fixed nature of the car note (and 4.99% isn't so bad).

Thoughts?

[Savoir Faire-Demogague in NJ]

The 10 year t-note was up around 3.57 give or take a few basis points. It rose quite a bit in the last six months.
At the moment it is trading at 3.32%, so it is down.
The rates you are quoting are pretty good.

[qofcc]

I would expect to see rates start to rise when they start talking about inflation.

According to this website: www.forecasts.org/prime.htm that's not going to be for a while yet.

I agree with your idea to pay off the HELOC first. That's what I'm doing also, because unlike a fixed loan, you can borrow it back.

[Tiny]

What Savoir Faire said. I'm paying down my HELOC before a low interest fixed loan (a mortgage). The HELOC balance is gonna take me 2 years to pay off if I'm agressive - upto 5 years if not. I'd rather get it paid off (or mostly so) before interest rates start to rise (I'm thinking a couple of years... ) If I pick up any other long term debt (more than 2 years) I'll be choosing low interest and fixed.

I really really wish the CC 0% balance transfers didn't have a 4% to 5% transaction fee... I miss the good old days of 12 or 18 month 0% no fee balance transfers

[Savoir Faire-Demogague in NJ]

I really really wish the CC 0% balance transfers didn't have a 4% to 5% transaction fee... I miss the good old days of 12 or 18 month 0% no fee balance transfers

I feel your pain.... the 0% offers suck now...though I get at least one in the mail each day.

[Angel!]

Assuming your heloc is based on prime, then you've probably got at least a year before interest rates start to budge (based on federal funds futures). And even then they will start moving slowing - probably goin up .25% at a time.

Given that your interest rates are fairly close & your payoff timeline isn't too far in the future, I don't think it makes a huge difference as to which one you tackle first. But, in case I'm wrong, starting with the variable is probably the way to go.

[qofcc]

I feel your pain.... the 0% offers suck now...though I get at least one in the mail each day.

We got one recently from Chase with 0% for 21 months with 3% fee. That's the best I've seen in a long time.

[joebanker]

I think rates will start to rise in the 3rd or 4th quarter. Inflationary preasures are starting to build in the ecconomy and the fed will have to start fighting it sooner or latter. If they wait to late you will see rates in the 15% to 20% range again. I hope they don't repeat O'Neil's mistake.

JoeBanker

[Savoir Faire-Demogague in NJ]

We got one recently from Chase with 0% for 21 months with 3% fee. That's the best I've seen in a long time.

The problem is what to do with the cash...

[qofcc]

The problem is what to do with the cash...

since the engine in the minivan blew up last month, we used it to purchase my in-law's gently used car for the price they would have gotten from the dealer on trade. The timing worked out well since they were shopping for a new car when we needed a used one. If I can't pay it off in 21 months, I can transfer the balance to the HELOC. Still less than the rates on an auto loan.

[Savoir Faire-Demogague in NJ]

since the engine in the minivan blew up last month

I was referring to taking 0%, low or no trans fee cash advances and placing the proceeds into six to 18 month CDs paying 3.75% or higher interest.
At one point I had $46,000 out on CCs at 0%.

[qofcc]

I was alluding to the fact that the money could be used to pay off another debt such as a HELOC or auto loan at a higher rate.

Yes, it's too bad the CD game is gone and investing borrowed money in the stock market is too risky (at least for me).

[formerexpat]

The problem is what to do with the cash...

3x bull S&P ETF - 21 months from now, you'll either be dead after Dec 2012 or a happy man.

Either that or hookers and blow - then you'll be a happy man much sooner!!

My believe on interest rates is a 25bps increase in 4Q11 or 1Q12. The signal alone by the Fed will be good for the markets but the Fed won't dare increase the rate too much just 6 months after finishing up with QE2.

I also believe there are a lot of ARM resets coming up in the next 18 months. Rates will stay low to see the resets not jump as much as they may have otherwise jumped. With a shaky housing market in a lot of those areas that used ARMs [Vegas, CA, FL], the last thing the Fed [and the people] would want is further deterioration in the housing market leading to more foreclosures, another QE, etc, etc, etc.

Having said that, it looks like you can pay $11k off in 6 months [or by September] and have your HELOC balance down to nothing by Sept 2012. Assuming your HELOC is a spread over prime, I think it will be about Sept 2012 when the Fed rate will push your HELOC rate over the 4.99% you're paying on the car note [i.e. 3 increases in my opinion - 4Q11, 2Q12 and 3Q12, or 1Q12, 3Q12 and 4Q12].

So, I'd say pay the car note off first then focus on the HELOC.

[2kids10horses]

If you are itemizing deductions on your taxes, the HELOC is tax deductible, whereas the car note is not. If that is important to you, pay off the car, then pay off the HELOC.

[runewell]

3x bull S&P ETF - 21 months from now, you'll either be dead after Dec 2012 or a happy man.

Or the stock market could stay relatively flat.

[jd2005]

Thanks for your thoughts.

On the 0% interest game, I am sorry to say that I missed that boat.

[Savoir Faire-Demogague in NJ]

On the 0% interest game, I am sorry to say that I missed that boat.

That was a feast to behold.

[Havoc]

I'm betting that interest rates will be rising in the middle of this year.

Most rates are tied to t-bills. The Fed's QE2 program is estimated to have purchased 70% of the US treasury debt since it's inception (November 2010). This program is slated to end this June - and since the Fed is "buying" the bonds with monopoly money, there is a lot of sentiment that there shouldn't be a QE3. So when the Fed stops buying 70% of the new debt issues, who is going to be stepping up to buy all of those t-bills? Investors, both foreign and domestic, are going to want/need higher rates to be enticed to buy them and that, IMO, will set up a whole new upwards spiral to rates..

[Savoir Faire-Demogague in NJ]

will set up a whole new upwards spiral to rates..

It is interesting that it is thought that interest rates will be rising rapidly due to many factors noted in your post and others who have posted.
Interestingly enough, the 10 year T-Bond's interest rate has falled about 35 basis points in the last several weeks.
At the moment the 10-year is trading at 3.27%.