Will interest rates keep going lower?

The rate the U.S. government pays to borrow money, considered the "risk free" rate is just above 1.5%. Thirty year mortgage rates have fallen below 4%, when they had been expected to rise. Interest rates paid by savings accounts are again below 2%.

Why are interest rates so low? 

Interest rates are a function of supply and demand for bonds. When demand for bonds rises, the rate paid for owning the bonds declines, And since bonds are seen as less risky than stocks, demand for less risky assets has driven bond prices higher and their yields lower.

How low can they go?

We are living during unprecedented times. Historically, investors have been paid an interest rate for lending money, in order to be compensated for the opportunity cost, for the risks of inflation, and for the credit risk. Now though, there is more than $15 trillion of government debt around the world with negative yields. This means that savers are actually paying to have the governments store their money. It remains to be seen whether the U.S. will remain immune to the same forces that created negative yields elsewhere, including lackluster economic growth and persistent low inflation.

What should we do?

We cannot predict, nor can we control, how low rates can fall and how volatile the stock market will be. What we can control is how we react to the market movements. Anxiety among investors often picks up in reaction to market swings. The best advice: don't panic or attempt to time the market, focus on your long term financial goals and focus on things you can control, like spending and saving. I always make sure my clients have a portion of their portfolio invested in non-volatile assets, such as CDs or a bond ladder, so that they are better able to weather the inevitable market swings.

Consider refinancing your mortgage

Several of my clients are refinancing their mortgage, taking advantage of the low interest rate environment to lower their monthly payments. Keep in mind that there is a cost to refinancing that typically run between 1% to 2% of your mortgage balance. Make sure that you will be in your home long enough to recoup these costs!!