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Living in a 3 percent world

Thursday, Sep 05, 2013 - 02:16

Sept. 5 - The benchmark bond soared to its highest level in more than two years to just under 3 percent, a rate that will impact home buyers, students, and retirees. Fred Katayama reports.

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The benchmark Treasury bond that banks use to set lending rates shot up to its highest level in more than two years, just shy of the psychological 3 percent level. That means borrowers in what we'll call a "3 percent world" will be dishing out more in interest payments. Polyana da Costa is a senior mortgage analyst at Bankrate.com. SOUNDBITE: POLYANA DA COSTA, SENIOR MORTGAGE ANALYST, BANKRATE.COM (ENGLISH) SAYING: "Homeowners would definitely get hurt the most because of the rise in the 10-year Treasury yield because mortgage rates follow the 10-year very closely." Since May 1, that 10-year has nearly doubled from 1.6 percent to 2.9 percent. So, a homebuyer who would've locked in an average mortgage rate of 3-1/2 percent back at the start of May now faces a rate of 4.7 percent. SOUNDBITE: POLYANA DA COSTA, SENIOR MORTGAGE ANALYST, BANKRATE.COM (ENGLISH) SAYING: "Let's take a homebuyer who's taking a $200,000 mortgage, if that homebuyer had taken out the loan on May 1, that homebuyer would be paying about $900 a month for that mortgage. That same $200,000 mortgage today on a 30-year fixed loan would cost that homebuyer about $1,040 a month, so we're talking about a $140 a month difference." Pity the poor student entering college next year. A new law now links federal student loans to the 10-year note, which was just 1.8 percent in May when they set the annual rate. Chances are, that rate next year will be a lot higher. Long-suffering retirees living off paltry yields aren't in for much relief, either. Between May and today, the average 5-year CD has practically stood still at quarter of one percent. But rising rates can be better for the economy, says ZT Wealth chief economist Max Wolff. SOUNDBITE: MAX WOLFF, CHIEF ECONOMIST, ZT WEALTH (ENGLISH) SAYING "Higher interest rates while they are not generally great, do induce people to save. And for the U.S. to be able to begin rebuilding its economy long term, we need higher consumer saving rates to make us more robust to stem stagnation, unemployment, and macroeconomic turbulence." And while mortgage rates have risen, homebuyers can take heart: they're still historically low.

Living in a 3 percent world

Thursday, Sep 05, 2013 - 02:16

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