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An Interest rate is essentially the price of money. For example, if I want to borrow money, the cost of borrowing that money is Interest rate that is charged. Conversely, if I lend money to someone, the price I would charge for loaning the money would also be tied to the current Interest rate.

How is the Interest rate determined?

Where are Interest rates today?

Interest rates are near historical lows. There are many reasons for this, but the primary cause has been the monetary policy of the U.S. government which has flooded the market with money in an effort to jumpstart the housing market. This policy is the result of the severe recession caused by the subprime mortgage debacle. Low Interest rates help the housing market by lowering the cost of borrowing money required to purchase a home. It also helps current homeowners by allowing them to refinance their existing mortgage at a lower rate. Additionally, low rates also help current homeowners with adjustable rate mortgages by enabling them to refinance and lock in low rates rather than facing the prospect of steep increases in mortgage payments when rates eventually rise.

Are Interest Rates Going Up or down?

Predicting Interest rates is a very difficult task due to the multitude of factors that can effect rates. The average historical Interest rate from 1942 until 2010 is 9.8%. While Interest rates are currently near historical lows, a simple analysis would seem to indicate a reversion to the mean. However, because of the complexity of information and number of variables that are involved with determining rates, accurate predictions are very difficult. For example, there was a consensus that Interest rates would rise after the 2008 recession. This prediction, while based upon sound analysis, has proven to be wrong as rates have continued to hold near historical lows.