Impacts of Interest Rates Increasing Significantly

It appears that interest rates will continue to go up.  Here are the impacts to many individuals:

• Pros
• CD, Bond and Money Market Rates will go up.  People will earn more money using this vehicles for savings.  High yield saving accounts will go up.   Unfortunately, most regular savings accounts will not change.
• Cons
• Interest on credit card debt will go up.  People will go into further debt.
• Mortgage rates will go up. Commercial mortgages that balloon will need to be refinanced at a higher rate.  It will be harder financially to buy a house.    Home sellers will get fewer buyers. 
• Variable interest rates will increase.  Adjustable rate mortgages will adjust upward.
• Bond mutual funds will decline in value.  Some mine are down 5-6% in 2026.
• Bond principals will decline in market value.  Some of my treasuries are down 4% in 2026.

Looks like the cons outweigh the pros.

Hopefully, interest rates rising significantly won't cause an economic decline nor, even worse, a recession.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial, credit, nor debt advice. Please consult a professional advisor.

Copyright © 2026 Achievement Catalyst, LLC

Inflation and Interest Rates Like the 70s-80s Again?

Inflation and interest rates in the late 70s and early 80s grew rapidly.  I remember gas prices doubling, interest rates rising, and gold and silver hitting new highs.  Inflation reached 13%.  Mortgage rates reached as high as 17% in my area.   When mortgage rates dropped, I felt lucky to get a mortgage at 12% in the early 80s.  I was also able to get a 5 year CD at 14%.  The 20 year treasury bond yielded 15%.

The stock market suffered also.  The Dow hit 1000 in 1972, fell 50% and didn't reach 1000 again until 1982.

Will the 70s - 80s happen again?  Right now, it looks probable but not certain.  To reduce market risk, I'm keeping a large proportion of our investments in short term money market funds.  I'm holding back on buying additional stocks and bonds to wait for the direction of interest rates.

For more on Crossing Generations, check back every  Thursday  for a new segment.

This is not financial nor investment advice. Please consult a professional advisor.

Copyright © 2026 Achievement Catalyst, LLC

5-7% Mortgage Rates are the Historical Norm

Home buyers are complaining that 30 year mortgages are about mid 6% and 15 year mortgages are high 5%.   Many of these home buyers of been spoiled by the super low mortgage rates below 3% during the covid era of 20-21.

Low interest rates had two impacts:

1. It lowered the monthly payment for buyers.  They could afford more house.
2. It caused house prices to increase since buyers could afford higher prices for the same monthly payment.

Now that interest rates are higher, people who have low interest rates have low incentive to buy a new house and have their monthly payment increase significantly.  First time home buyers are locked out the market by both high monthly payments and high house prices created by 20-21 low mortgage rates.

But rates are not that different from historical norms.  Many current buyers and potential buyers weren't in the market in the 80s.  I was.   Back then, mortgage rates hit a high of 17% after being in the normal 4-7% for decades.  I felt fortunate to get a 12% mortgage rate for my first house.   I got my second house after being married at a 5.5% mortgage rate and felt lucky.

IMHO, if it's not mortgage rates, then it must be home price inflation.  If it the issue, it's a much tougher problem to solve for home buyers.

For more on Crossing Generations, check back every Thursday  for a new segment.

This is not financial, mortgage nor home buying advice. Please consult a professional advisor.

Copyright © 2026 Achievement Catalyst, LLC

ARM Resets Benefit from Low Interest Rates

Big Wave of Mortgage Resets May Not Be As Bad As Feared by CNBC.com reports that holders of adjustable rate mortgage (ARM) will benefit from the current low interest rate environment. Since mortgage interest rates are pegged to indices such as the interest rate of U.S. Treasuries or the London Interbank Offer Rate (LIBOR), many ARMs will be lowering interest rates versus 2006 to 2008, when the initial rate was set.

This is good news for people with ARMs who are still making their mortgage payments. Their monthly payment may be reduced depending on when they initially borrowed the funds. Thus, the number of mortgage defaults due to ARM resets are expected to be lower than originally predicted.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial or mortgage advice. Please consult a professional advisor.

Copyright © 2011 Achievement Catalyst, LLC

Spend Less Earlier or More Later

For large purchases such as furniture, car or house, financial decisions are sometimes based on the size of the monthly payment. If the amount is affordable, then the purchase is made using monthly payments for a specific period. Personally, I like to evaluate the total cost when determining whether to make a purchase with cash or over time. Below are a two examples of the difference between paying immediately or over time.

	Home Mortgage @ 5.375% interest rate
Price	Payment Period	Total Spent	Difference
$150,000	30 years	$302,384	$152,384
$150,000	15 years	$218,826	$68,826
$150,000	10 years	$194,234	$44,234

	Car Purchase @ 10% interest rate
Price	Payment Period	Total Spent	Difference
$25,000	7 years	$34,862	$9,862
$25,000	5 years	$31,870	$6,870
$25,000	3 years	$29,040	$4,040

Essentially, the value in the difference column is the price for "paying later," which range from 16% to 102% of the money borrowed. For purchases other than a home, the premium for paying later isn't worth it to me and I try to pay cash immediately. For a home, our approach is to take out a 30 year fixed rate mortgage, but then try to pay it off as soon as possible, to minimize the difference in cost.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

The Mortgage Refinance Dilemma

Despite Low Mortgage Rates, Homeowners Can't Refinance by David Streitfeld of The New York Times reports the difficulty of refinancing a home mortgage due to declining home values. Even though a homeowner is current and can make the lower payments on the new mortgage, the lender won't refinance the mortgage since the property is below the value of the mortgage. So it appears the lender would rather have the owner potentially walk away from the higher interest loan, than give the person a lower fixed rate mortgage at the same amount of principal.

I had a similar experience with our lender, but for a different reason. Since taking early retirement in 2007, we have been living off our savings, both principal and earnings. Our income from wages, interest and dividends is low, which is what our bank considers when make the loan. The bank does not include income from capital gains, e.g. the sale of stock, since the amount is not predictable. Thus, even though we were comfortably making payments, had 60% equity in our home, and enough cash to pay off the mortgage, our lender would only qualify us for less than 1/2 of the remaining principal, based on the predictable sources of income, wages, interest and dividends. Our decision? We simply paid off our mortgage in May, 2009.

While I understand the basis for the lender's decisions, it doesn't meet my standards of common sense logic. Since the loan already exists, why not refinance the existing principal to a lower monthly payment, especially if the owner has a job or liquid assets to cover the monthly payment? In my opinion, during the housing boom, many lenders ignored common sense logic and lent money to borrowers with insufficient income or savings, and now during the housing bust, lenders are again ignoring common sense logic and not lending to people with sufficient income or assets to comfortably make the payments.

That seems to be the nature of bubbles, i.e. standards are too loose during expansion, and stanards are too tight during recovery.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Article on Causes of Mortgage Foreclosure

Being an engineer, I love to read about data based conclusions and how they should affect decisions. New Evidence on the Foreclosure Crisis by Stan Liebowitz in The Wall Street Journal has analyzed foreclosures form the second half of 2008 to better understand the causes and determine whether government intervention will help reduce foreclosures.

Based on his analysis of the 30 million mortgages, Mr. Liebowitz concludes that the main reason for foreclosure is negative equity (285,305). According to the article, only 12% of mortgages have negative equity, but they account for 47% of foreclosures. The second and third reasons for foreclosure were unemployment increase (183,447), and a sub-prime credit rating (148,697), respectively. Fourth on the list was a down payment of less than 3% (130,014), Interestingly, a reset of the mortgage to a higher interest rate (60.492) was the fifth highest reason and significantly less in occurrence than the top four.

Thus, the zero down payment purchases during the housing bubble, the subsequent housing market crash and the increase in unemployment during the recession are likely the main causes of rising foreclosures. Based on Mr. Liebowitz's analysis, it's likely the percentage of mortgages in foreclosure will continue to grow, until housing prices stop declining and unemployment stops increasing.

Unfortunately, Mr. Liebowitz notes, the current government programs of reducing mortgage interest rates and creating stimulus packages do not appear to be helping with either solution, as they are not reducing negative home equity nor reducing unemployment at this time.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

We've Achieved Zero Debt

On May 20, 2009, we paid off our mortgage and became 100% debt free. Here are some the consequences of our decision:

Savings reduction. It cost almost 1-1/2 years of my pre-retirement, pre-tax salary to pay off the loan. Most of the funds came from selling stock in our investment accounts. I finally came to the conclusion that paying off a 5 3/8% loan was likely a better return than investing in stocks.

Unfortunately, I should have listened to my spouse who wanted to pay off the mortgage a year earlier.

Monthly expense reduction. Our monthly expense will be reduced by 24%, extending the longevity of our savings by that amount. Fortunately, we only expended about 10% of our savings to pay off the mortgage, thus making the choice a good trade off, i.e. 10% savings loss for a 24% gain in time savings will last.

Stock market losses. It's no surprise that selling out the investment accounts resulted in a high number of capital losses. Combined with the loss carryover from 2008, it will take many years to write off the amount on our tax return.

Peace of mind. We no longer can lose our home due to missing mortgage payments. Not paying property taxes is now the only reason for which our house can be foreclosed.

Overall, we're glad the mortgage is paid off. It's one less thing to worry about as we navigate our choice of early retirement through these treacherous economic times.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Saying Bye Bye to our Mortgage

Our original plan was to pay off our mortgage when we retired in order to have zero debt. However, shortly after taking early retirement, I convinced my spouse to keep our 5.375% 30 year fixed mortgage, instead of paying it off. I thought that having the funds invested in the stock market was a better option than paying off the house. As it turns out, choosing to keep the mortgage was a poor investment decision, given the decline of the stock market.

In the last couple weeks, we've reconsidered the decision to keep the mortgage. Now, we're going to follow the original plan and pay off the mortgage. Here are our main reasons for doing so:

A higher guaranteed return. Who would have ever though I'd settle for only a 5.375% return for paying off our mortgage. While it's unlikely the stock market will decline significantly as it did in 2008 and early 2009, I can't risk similar losses going forward. Nowadays even the positive return from a mortgage payoff seems much better than the recent negative stock market returns.

In addition, short term CDs are only paying 1-2%, and do not offer a better return that paying off the mortgage.

A 24% reduction in monthly expenses. This significantly reduces our withdrawal rate from savings. Since we sold stock to raise money for the payoff, our remaining funds in cash, CDs, and bonds can cover an additional 19 months of living expenses, taking us from 5 years and 2 months to 6 years and 10 months.

Shift stock market exposure to IRA and retirement accounts. Since our taxable accounts will be used for living expenses for the next ten years (hopefully:-), I wanted to limit the exposure of these funds to market volatility. Hopefully, we won't need the funds in our IRAs and retirement accounts for more than 10 years, allowing them to recover from the recent stock market decline.

Eliminate foreclosure as a financial risk. Almost. With the mortgage paid off, the risk of foreclosure is very low. We only need to pay property taxes to ensure that we will able to keep our house.

Currently, we are targeting to pay off the mortgage by the end of May, 2009. If all goes as expected, we will have paid off a 30 year mortgage in 6 years.

Update: We paid off our mortgage on May 20, 2009.

For more on Strategies and Plans, check back every Monday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

2008 - Getting Over It and Moving On

2008 has been a tough year financially. Although I thought 2008 would be a poor year for investing, I didn't think it would be this bad. My plan to stay invested and ride out the downturn proved to be the wrong plan. Next week, when I do my quarterly financial update, I expect the results to be pretty dismal.

However, it won't do any good to relive 2008...it's done and will be over in a few days. Could have, would have and should haves won't change anything. The best thing to do is look forward to 2009 and try to recover from 2008.

In spite of beginning with the economy in recession, 2009 has a few good things going for it.

1. Oil prices are much lower. After peaking at $ a barrel in July, 2008, oil has fallen to a 5 year low of less than $34 a barrel. In my area, I've seen gasoline as low as $1.41 per gallon. For someone that drives 10,000 miles per year at 20 miles per gallon, that's a savings of $1300 per year versus $4.00 per gallon gas from this summer.
   
   It has been great paying $25 to fill a tank instead of the $80 I paid at the peak this summer.



2. Mortgage rates are falling. Thanks to the Fed rate cuts, mortgage rates are falling below 5% on 30 year fixed rates. Some have even predicted mortgage rates below 4%. For those that qualify, refinancing may be able to lower monthly payments significantly.
   
   In our case, we have about 59% equity in our home with a 5.375% fixed rate mortgage. If we refinance our remaining principal for 20 years at a 1% lower rate, we can lower our monthly payment by 18%.



3. Stocks have higher dividend yields. Dividend yields for the S&P 500 are at 2.90%. While low relative to historical values, it is higher than the 10 year treasury yield of 2.13%. Also, there are about 75 stocks with yields of 5 to 9%.
   
   While the first two are a "give-me,"this one is not quite as certain. In some cases, companies have been reducing or eliminating a dividend to conserve cash. Also, there is the risk that the recession will continue to reduce company earnings in 2009, leading stock prices to drop further.

Based on the above, I will enjoy the lower gas prices and look forward to mortgage rates dropping further. I also expect the stock market to start recovering, and may consider purchasing some high dividend stocks with 6-9% yields that I believe are sustainable.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial, investment, or re-financing advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Mortgage Rates Are Falling

Last week, 30 year fixed mortgage rates dropped to the mid 5% range as the government announced plans to buy mortgage based securities. However, lending criteria will be much stricter than two to five years ago, where almost everybody qualified. The lower rates most likely helped borrowers in good standing, i.e. are current on payments with a home value greater than their mortgage. According to Bankrate.com , "a good candidate for refinance is a homeowner who:

has good credit;

owns a house that is worth substantially more than the outstanding debt on it;

earns enough to repay the loan and can prove it;

isn't overburdened by student, auto and credit card debt;

has enough cash to pay the closing costs."

For those that can meet the tighter lending criteria and depending on the current mortgage terms, refinancing may be beneficial for those with fixed rate mortgages rates above 7% or those with adjustable rate mortgages who want the security of a stable interest rate.

For more on Ideas You Can Use , check back every Tuesday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Some Money Rules of Thumb I Use

MSN.com recently published 16 favorite money rules of thumb by Liz Pulliam Weston. While rules are thumb (e.g. rule of 72s) are not as precise as doing the detailed analysis, they are often easy to remember and easy to use, especially when doing a quick assessment. Here were the ones from the article that I personally use:

1. Retirement, Part I: "Save 10% for basics, 15% for comfort, 20% to escape." While the numbers may vary for different individuals, I think this a a great starting point. After getting started, one can do the more detailed analysis and make refinements. However, I do know that 0% won't cut it. For our goal of retiring early, we have been saving over 20% of my gross salary.



2. Retirement, Part II: "Retirement money is for retirement; until then, keep your mitts off it." Fully agree. I would add don't think of borrowing as an acceptable way to use retirement money for very good needs (e.g. education or first home).



3. Student loans: "Your total borrowing shouldn't exceed what you expect to make your first year out of school." My student loans equaled 40% of my starting salary and I recall feeling that amount of debt was burdensome. I couldn't imagine starting with student loans equal to my starting salary. However, I guess that is the nature of higher educational costs today.



4. Cars, Part I: "Buy used and drive it for at least 10 years." I prefer keeping a car even longer, if mechanically possible. Also, I don't mind buying new if I keep it for at least 10 years. However, I tend to buy basic models (example base truck models) or brands that hold value (e.g. Toyota) when buying new.



5. Mortgages, Part I. "If you can't afford to buy the house using a 30-year fixed-rate mortgage, you can't afford the house." Fully agree. I've written about this before in Avoiding an Expensive Mortgage Mistake.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

Photo Credit: morgueFile.com, Grtguru

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Mortgage and Credit Crisis - Has The Fat Lady Sung?

On Friday, August 31, 2007, both President Bush and Dr. Ben Bernanke made separate statements about government interventions for the recent subprime crisis, which gave investors comfort. President Bush will expand FHA loans to help to some borrowers whose loans will reset in the next two years. In a speech at the Kansas City Federal Reserve annual symposium at Jackson Hole, Wyoming, Dr. Bernanke indicated he would do what's necessary to protect the economy against the latest credit crisis.

A helping hand not a hand out

Both President Bush and Dr. Bernanke made it clear that the government IS NOT planning a bailout for everyone. Specifically help will be provided to a select group and the Fed will still only intervene if economic health is a stake.

President Bush commented, "It's not the government's job to bail out speculators or those who made the decision to buy a home they knew they could never afford. Yet there are many American homeowners who could get through this difficult time with a little flexibility from their lenders or a little help from their government."

Bush's plan would allow homeowners who have not missed payments, but who cannot afford their increases in ARM mortgage payments , to refinance into mortgages insured by the Federal Housing Administration. Borrowers will still have to demonstrate good credit risk, and have at least 3% equity in their homes.

In his speech, Dr. Bernanke explained, "It is not the responsibility of the Federal Reserve -- nor would it be appropriate -- to protect lenders and investors from the consequences of their financial decisions. But developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy."

Soft landing coming?

For now, it appears the Fed and the Bush administration have engineered the beginnings of a soft landing. It seems they have found a good balance between credit crisis and a bailout of those who made risky investments or took out risky mortgages. By providing just enough assurances that the economy, but not speculators, will be protected, economic panic has been averted once again. If the strategy works, the excess speculative risk will be washed out while maintaining economic strength.

However, we are only in the first act of a three act opera and "it ain't over until the fat lady sings" in act three. The Fed have and the Bush administration have done well in Act One. Now it will be up to businesses and individual investors to determine the outcome in Act Two. How they behave in the last quarter of 2007 will determine whether a soft landing is to be or not in 2008.

For more on New Beginnings, check back Sunday for the next segment.

Photo Credit: morgueFile.com, Kevin Connors

This is not financial or policy advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

PR Opportunity For Countrywide's CEO

Angelo Mozilo, Countrywide CEO, has been getting a lot of face time recently. As I interpret it, Mr Mozilo believes his company may be negatively impacted by the actions of the markets, regulators and analysts. In addition, he is calling for the government to help. Quoting from Reuters, here are some of the statements Mr. Mozilo made in his interview with CNBC last week:

1. Countrywide Financial Corp. Chief Executive Angelo Mozilo warned on Thursday that the U.S. housing downturn could lead the country into recession and the Federal Reserve should cut its discount rate to boost liquidity.
   
   Asked if there would be a recession, Mozilo said: "I think so ... I know I've been proven wrong so far, but I can't believe that when you're having a level of delinquencies, foreclosures - equity has disappeared, equity is gone, the tide has gone out - that this doesn't have a material effect, A, on the psyches of the American people, and eventually on their wallet."



2. Mozilo, 68, said markets are in "one of the greatest panics I've ever seen in 55 years in financial services."



3. "There is no more chance for bankruptcy today for Countrywide than there was six months ago, a year ago, two years ago, and when the stock was $45 a share," Mozilo said. "We're a very solid company."



4. In the interview, Mozilo also accused Merrill Lynch & Co. analyst Kenneth Bruce of "irresponsible behavior" in suggesting in an Aug. 15 research report that downgraded Countrywide to "sell" from "buy" and said that Countrywide might face a possible bankruptcy if market conditions worsen.

Mr. Mozilo didn't create any additional sympathy from me for him or Countrywide. Especially, since he was paid $69 million in 2006 and $160 million for a five year total. In addition, he has sold about $200 million of Countrywide stock in 2007.

While My Wealth Builder has no PR experience, I have a few ideas which I believe could create a more positive perception. So here are my PR suggestions, for what they are worth:

1. Have a third party assessment of the issues. This would provide additional credibilty, which may help the case.



2. Show more concern. One can do this without any admission of wrong doing. At least one can publically feel sorry for the folks losing their houses due to mortgage issues. During each interview, I would express concern for those who may be losing their homes.



3. Contribute past and current compensation to solving issue. I call this as the Lee Iacocca solution, who only accepted $1 per year in compensation until the problems were solved at Chrysler. One could use compensation in the past five years to buy Countrywide stock. Also one could choose to accept no compensation until the problems are resolved.

With this approach, I believe one may be able to get more support for proposals and Countrywide's situation.

For more on New Beginnings, check back every Sunday for the next segment.

Photo Credit: CNBC

This is not financial or public relations advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Sub-Prime Mortgages - Taking Responsbility

Recently, the government proposed to protect people from sub-prime mortgage mistakes they have made. While the intentions are good, it is impossible for the government to keep protecting us from our financial mistakes.

1. The government (and taxpayers) can't afford it.
2. It provides a false sense of security that may cause people to take more risks.
3. It's not the business of the federal government to offset major personal finance mistakes.

That's why I'm impressed that the banking industry decided to take on the sub-prime mortgage issues on their own. Citigroup and Bank of America have set up a fund to help sub-prime mortgagees at risk for foreclosure. While this won't solve everyone's issues, it's a start to have those that made ill-advise mortgage decisions or used ill-advised mortgage products take responsibility for their situation.

For more on Reflections and Musings , check back every Saturday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Eliminating Mortgage Debt - New Thinking

Last week, my retirement spending analysis showed virtually no reduction in daily expenses during retirement. This was a bit surprising since the rule of thumb is one can live on 80% of one's current income when retired. After thinking more about this, I realized the issue was our home mortgage.

Currently, our mortgage payment (principal and interest only) equals 19% of our after-tax income. If we can eliminate our mortgage debt by or within a few years of retirement, our income needs will be reduced by about 20%. Eliminating our mortgage debt will significantly improve our ability to retire.

We currently have a 30-year fixed mortgage at 5.375%.

Our current plan is to pay the mortgage off in about 15 years by making additional principal payments. One way is to increase the monthly payment by about 50% as described in Paying Off A Home Mortgage Earlier. We have chosen another way of making one annual lump sum payment equal to about 4% of the original mortgage principal. Either way will pay off the mortgage in about 12 more years.

However, I also want to cover the possibility of retiring earlier than 12 years from now. If I get the opportunity to retire in my 40s :-), I might not have paid off the mortgage. Here is how I plan to eliminate the mortgage in less than 12 years, if needed.

1. Continue with our current mortgage payoff plan. At this time, I will not pay any more additional funds against the mortgage. Doing so would sacrifice the savings we are putting against our retirement. I would rather keep the money in liquid assets versus illiquid assets such as our house.
   



2. Assign a part of current and future savings to a 50% or greater lump sum mortgage payoff. This money would be used to payoff part of the mortgage, if needed. Otherwise, the fund will remain part of our emergency or retirement funds.
   



3. Identify other potential sources of funds to pay off the remaining balance in lump sum. If I can retire earlier than planned, it will likely be because of a windfall. Windfalls would include the following: excess returns from investments/stock options, or severance pay. Any of these windfalls could be used to payoff the remaining mortgage balance.

In the past, I would have been uncomfortable putting so much money into an illiquid asset such as a house during retirement. However, Retirement Planning - A Staged Approach has convinced me that the value of one's house can be effectively used for retirement income.

For more New Beginnings, check back every Sunday for the next segment.

Photo Credit: morgueFile.com, Michael S. Richter

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC