After almost three decades of slowly declining interest rates, the direction is beginning to reverse and we are about to begin a sustained period of rising interest rates. How high they will go is impossible to predict, but it is not going to be a short-term event. It will probably go on for several years because the Fed must keep inflation in check, although inflation is close to non-existent right now. But as the economy begins to improve, prices are going to start rising slowly but surely, so inflation will begin to increase. One certainty is that any increase in interest rates is going to be slow so as not to hinder the economic recovery in any way. But it is coming, and soon. Consider a few of the results of rising rates.

One of the first places it could be felt is in housing. Mortgage rates are already starting to rise, having risen a half a point since December. As mortgage rates continue to rise, and with the Federal Reserve having ended its mortgage buying program, there is a risk that the gains that have begun to appear may be reversed. Mortgage delinquency rates are still increasing, and mortgages with adjustable interest rates will have higher payments, possibly pushing more borrowers into default. (more…)