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2012 interest rate outlook

By Greg McBride, CFA · Bankrate.com
Thursday, January 5, 2012
Posted: 4 pm ET

I recently appeared on the Fox Business Network to talk about my 2012 interest rate outlook. Here’s an edited transcript of my comments:

Mortgages

I think there’s a possibility that mortgage rates could move considerably lower early this year. It will be brief, but here’s the scenario under which I see that unfolding: If fears of the European debt crisis hit a crescendo, that’s going to spell the low point in Treasury yields and mortgage rates. You could see 30-year fixed mortgage rates moving down into the 3.5 percent neighborhood on average. But again, I believe that opportunity’s going to be brief. All told, for much of 2012, I expect we’re going to be in familiar territory: the low 4 percent neighborhood. The bottom line is that mortgage rates are not going to be an impediment to well-qualified borrowers anytime in 2012.

Auto loans

As with mortgage rates, we saw record-low auto loan rates in 2011. More than any other product, we see big disparities on auto loan rates. When you shop around, the lowest rates you can find at banks and credit unions are below 3 percent for both new and used cars. And with the Federal Reserve pledging to stay on the sidelines until at least the middle of 2013, the good news is those rates aren’t going to drive away from you. From the manufacturer's standpoint, in an effort to sell as many cars as they can, they, too, will have some pretty attractive offers.

Credit cards

Credit cards represent the haves and the have-nots. Consumers that have really strong credit are in the driver’s seat. They’re going to continue to be able to find single-digit interest rates and zero percent balance transfers. But the consumers that have some spots on their credit -- some late payments or defaults -- they’re not only going to continue to pay higher rates, but I think those rates will work their way even higher.

Deposits

Unfortunately, there’s no good news for savers in 2012. They’re going to continue to see these record-low rates. At best, this will be the year that savings rates bottom, but they’re not likely to show any improvement.

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