Will Interest Rates Keep Rising? (Five Year Projection)

By James Young on May 26, 2014
Will Interest Rates Keep Rising? (Five Year Projection)

As the calendar flipped forward to welcome in 2014, financial forecasters far and wide were predicting that interest rates would begin a steady climb as the year wore on. Now, nearly six months into the new year, the prediction has come mostly true—though not at a pace most would have predicted. Even without any dramatic jumps, the writing still seems to be on the wall, leaving most prospective homeowners wondering, will interest rates keep rising?

Five-year forecast

There are numerous predictions of interest rate forecasts, with most focused on the idea that historically low rates enjoyed in recent months are not sustainable as the economy continues to recover. Therefore, the longer-term forecast would seem to suggest a rise in interest rates over the next five, or even 10, years.

However, a few analysts point not to the past year, but to 40 years of historical data in predicting where interest rates are headed for 30-year mortgages. When this data is closely examined before calculating a forecast, there is an overwhelming probability, slightly over 90 percent, that the rate will actually fall in five years, based on December 2013 to December 2018 comparisons.

The same forecasting process suggests there will be a 9.2 percent probability interest rates will be higher and a 0.4 percent probability that rates will stay the same or at least be at the same point exactly five years from now.

Shorter-term mortgage rate outlook

Just as they had earlier in the year, most analysts continue to predict higher interest rates by year’s end. For example, Kiplinger’s has gone on record as stating it expects 30-year fixed rate mortgages to rise as high as 5.5 percent by the time the year draws to a close. Don’t look for this small increase in rates to do much damage to the recovery of the real estate market. Put into perspective, consider the following parameters:

  • One percentage point increase from a 4.4 percent rate
  • 30-year mortgage
  • $100,000 home loan

The result is a mere $61 increase in monthly payment. If you are in the process of purchasing a new home, the current advice is to go ahead and lock in an interest rate once you’ve set your closing date. While they may differ when it comes to longer-range forecasting, most experts are still predicting a rise in rates before 2014 draws to a close. While increases in rates have been less than dramatic, the trend for them to inch upward is expected to continue and for those forecasters not relying on 40 years of historic data, there is the expectation that average rates will creep upward over the next five to 10 years. Those continued low interest rates are a sign of lingering attempts to address the problem of a hurting economy. While economic recovery has been steady, it has also been slow, with interest rates hovering around historic lows well into 2014 even as the housing market continues to draw strength. This has spelled less drama for rates in the first half of the year.

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About James Young

My name is James Young- I love red wine, sailing, and playing guitar. I believe that everyday is truly a gift. I'm blessed to live five minutes from the sand in the beautiful city of Long Beach, CA. When I'm not assisting homeowners, you'll find me belting melodies with friends around a campfire, wandering the halls of an art exhibit, or watching ESPN re-runs until the sun comes up. So what am I doing here, you might ask? In a couple of sentences- I'm passionate about empowering first-time and experienced home buyers to make their dreams a reality. Whether it's saving thousands on your home loan, buying your first home, or acquiring your first investment property, I'm always here to help. Don't hesitate to ask questions, and please remember to "share the love"! :) #loveloans #loverealestate #lovelife!