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Predicting Paths of Interest Rates In 2014

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TWC News: Predicting Paths of Interest Rates In 2014
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NY1's latest Money Matters Report asks a financial analyst to look into his crystal ball and say where interest rates will go in 2014. NY1's Tara Lynn Wagner filed the following report.

What goes down must go up. At least, that seems to be case when it comes to mortgage rates, which have been hovering around historically low levels for some time.

Thirty-year fixed mortgages climbed more than a percentage point in 2013, ending the year at 4.7 percent. Greg McBride of bankrate.com expects to see that climb continue in 2014.

"Thirty-year fixed mortgage rates could get above 5 percent in the first half of the year and in the second half of the year, could go as high as 5.5 percent," McBride says.

Those are heights we haven't seen in nearly three years, but given some context, he says that they're hardly cause for alarm.

"The average rate over the last 30 years is actually pretty close to 7.5 percent, so we're still in very good shape," McBride says.

What's behind the climb, he explains, is the scaling back of the Federal Reserve's bond-buying spree. For some time now, they've been purchasing $85 billion a month in long-term bonds, which has helped keep long-term interest rates, like on mortgages, low.

"So instead of $85 billion, in January, they're going to buy $75 billion, and if the economy continues to improve throughout the year, the expectation is that they will continue to ratchet that number back as the year progresses," McBride says.

However, what he doesn't expect them to change in 2014 are short-term interest rates, which currently sit near zero. That can impact your wallet in several ways.

On the one hand, earnings on your savings account will continue to remain virtually nonexistent, with interest rates less than 1 percent. On the other hand, auto loans rates should remain at record lows, and we shouldn't see much change in terms of credit card rates, either.

However, McBride says that once the Fed starts inching the short-term interest rates up, and they will, all that will change, so use this time wisely.

"Variable rate debt, this is your year to pay if off because the days of rock-bottom interest rates are numbered," he says. "Things like credit cards, home equity lines of credit aren't going to see much movement this year, but they will eventually, perhaps in 2015, so this is the year to really make some headway on paying down that debt."

Come to think of it, that's a pretty good goal to work toward in any year.

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