My comments:Melack wrote:How do interest rate affect us?
when interest rates rises, if you borrow money, you're likely affected by paying higher interest payments.
if you're putting money in fixed deposits, likely you get higher interest rates as well.
rise in interest rates increase the "cost of borrowing" for companies, thus high interest rates actually affect a company's profit adversely....
thus, to stimulate the economy U.S. Fed had been cutting interest rates since year 2000 when the market crashed......cutting interest rates all the way down to 1% from over 6%. Of course, as the economy recovers and risk of inflation rises, U.S. Fed in trying to "cool down" the economy, proceeded to increase interest rates from 1% all the way to 5.25% currently.
U.S. Fed is widely expected to reduce interest rates sometime in year 2007.....and that anticipation actually triggered a run-up in bond prices....when U.S. Fed didn't cut interest rates as expected, it translated to a drop in bond prices in the last 2 months.
Bond prices typically move inversely to interest rates. The reason is interest coupon on Bonds is typically fixed (that's why bonds are also known as Fixed Income securities).
Thus when interest rates rises, as a bond holder you actually lose out since you could have earned higher interest rates if you didn't buy the bond earlier. Since interest coupons are fixed, the adjustment takes place on the price of the bond instead.
Thus, you have this general saying that as interest rates rises, bond prices dip. As interest rates drop, bond prices rise.
if you are taking a Housing Loan, if your existing bank increase your interest rates, one option you can do is to consider refinancing with another bank that charges lower interest rates. By doing so, you can cut down interest expenses by thousands of dollars to tens of thousands of dollars. As a general guide, for a $400,000 loan, by refinancing if you manage to cut down interest rates by 1%, your interest savings for 3 years could work out to more than S$10,000!!!
I know becos everyday we help consumers to refinance their Housing Loana and enjoy interest savings from doing so.
Refinancing can be very simple and hassle free since we provide a one-stop service for comparing ALL Housing Loan packages in Singapore and help with all the procedure, and it cost NOTHING since we don't charge a fee at all.