Although we get to hear many opinions about interest rates and their trends and impacts, very few people seem to understand these rates’ significance and importance/relevance, of these rates in some areas of our lives! After many decades of involvement in leadership, political campaigns, leadership training and planning, real estate, consulting, financial sales, etc. We strongly believe one benefits by understanding more about these and how they affect many things in our lives!
Interest rates truly matter, whether related to personal organization and public spending, home ownership and related costs, credit-related issues, stock and bond pricing, business matters, and more! With that in mind, this article will attempt to consider, review or examine briefly five of these areas and how the cost of the money makes a significant difference.
1. Bond prices and interests rates:-
The price of a bond is, somehow, related to the interest rates! When these rates go down, prices rise, and when they go up, the opposite occurs! Bonds have what is known as a par value, the best price paid at the end of the term. Markets usually set these at 100, representing $1,000 per bond at maturity. Moreover, during this period, the pricing can fall or rise, which impacts liquidity-related issues!
2. Consumer credit:-
Low borrowing costs may help the automobile industry in terms of consumer financing, etc.! Although not as much as other vehicles, rates on credit card debt are lower, and there are often shorter terms, offering deals and promotions! Moreover, since most of these are variable and based on some index, etc., what happens, when there is an increase in this?
3. Mortgage Rates:-
For some of the previous years, we have been experiencing and witnessing record-low mortgage interest rates, which have helped the overall housing market/real estate, especially in terms of increasing prices! In most areas, we see home prices at their higher levels, ever by a significant, dramatic amount! When this rate is low, a home can buy more house for his bucks because when these rates will rise inevitably?
4. Impacts on the stock market prices:-
For some time, because bonds have paid so little in dividends, many have considered the stock market the only game in town! In addition, many corporations have seemed better off than they possibly are, and we have witnessed a superior ratio of prices to profits than in the past! How high can it go? How long is it going to last?
5. Business Borrowing:-
Another area affected is the business rate of borrowing! Presently, they have access to relatively cheap- money, which will help reduce borrowing costs, purchasing inventory, overall operations, etc., but what happens when this ticks up?