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From the desk of: Donald Swart
Will Mortgage interest rates stay down or
go Higher?
You are right, mortgage rates can not get much lower - but,
they can and will go up!
The Economics of the United States is a checks and balance
system.
Think of economics/the economy as a fulcrum, when one
end is up, the other end is down.
When the stock market is down people/investors invest in
Bonds - they are secure, low risk, slow in growth and long
term - this is what the Long Term Mortgage rates are based
on.
When the Stock market rallies, people/investors buy stock,
because stock is rapid in growth, but riskier however,
people/ investors will take the risk. People/investors pull
their funds from the Bond market, the bond market tanks,
Long Term interest rates-mortgages go UP. The more the stock
market rallies the worse the Bond market gets and long term
mortgage rates go UP.
Investors/People start selling T-bills, notes, bonds,
because the stock market is a better and faster Return On
Investment (ROI). So the interest rates, ROI, on the
T-bills, notes and bonds are raised to be competitive; And
the banks pay more interest on CD's to be competitive. This
encourages Savings.
REMEMBER you Can NOT have a growing economy, strong market,
and low interest rates. There's that fulcrum again.
Where does the money come from to loan long term?
It comes from, "in short", Cash - Bonds, CD's Savings and
Trusts accounts, pension Funds and Insurance Companies, all
invest in Real Estate.
To get people to SAVE there has to be a better ROI. Higher
Interest Rate must be paid on Bonds, Savings, CD's and
Trusts. When Higher rates are paid to encourage Savings, the
cost of borrowing these funds go UP. Savings has to be
encouraged to have funds to loan? Ironic isn't it? The
fulcrum lives.
The Economy will improve . . . not "if" - but when.
The US Economy is strong and has had a steady growth
incline since 1928.
Sure we have had spikes and valleys;
we are in a valley now. . . But How long?
History has shown our economy always roars after a valley.
The market will improve and the long term
Interest Rates-Mortgages will go UP . . . not "if" - but
when.
The Chairman of the Federal Reserve Mr. Greenspan - his Job
is to read the Economic indicators and report what is
happening, "The Messenger". Greenspan "tries" to make
adjustments that will Improve the Economy - BUT what
is Great about our Economy and our Country is that it is
bigger than any one person, company, industry or party. It
WILL have its own way and it will not be controlled or
stifled - - -for long!
When Greenspan lowers the Fed rate, this makes the stock
market rally; Bonds go down, Long term Interest
Rates-Mortgages go UP. The purpose of lowering the Fed rate
is to jump start, put confidence in, the market. The Market
improves - the Bonds go down and the long term rates go UP.
For Example: Jan 5, 2001 prime rate was 9.5%, the 30 year
Fixed Rate was 6.25%, the lowest it had been in a decade.
Greenspan cut the Fed rate ½ point we call it 50 beeps
(bases points) Good -Yes? Immediately the market rallied,
Stocks went UP, Bonds went down; there's that pesky Fulcrum
again.
This in turn dropped the Prime rate ½ point to 9%. The
Mortgage rates went UP ½ point to 6.75%. We had 6.25% for
half a day. We did not get back down to 6.25% again until
November, ten months later!
The Prime Rate will be the First and fastest increase -
The banks "Know this".
That is why they advertise "Prime for life"(ARM) and
encourage Home Equity Line of Credit (HELOC).
So, we all want the market to improve, Right - so we
can get a better ROI, on our stocks and 401k's, this
improves the Economy and this raises the long term interest
rates. Good -Yes?
The bottom line is - take advantage of the low interest
rates NOW, because they will not last. Secure your long term
debt, get out of your Home Equity Line of credit; this is
the lowest interest rates in forty years.
Then invest in America , the Market, because Our Economy
WILL IMPROVE and make a lot of money.
And this will stimulate growth and create employment.
Because, when people make money they SPEND IT, SAVE IT or
INVEST IT.
If they Spent it, it stimulates the economy .
If they Save it, it stimulates the economy because it draws
interest, and other people/companies can borrow the money -
and they spend it.
If they Invest it, it stimulates the economy because it will
improve their company - to buy or make more products, which
will employ more people to earn an income, which they will
either SPEND, SAVE or INVEST their money.
Isn't America Great ! I'm putting
everything into the market, because I want to ride this wave
to the PEAK. . . Not "if" but When.
This is a "scratch" on the "thumb nail" view of
economics.
Call or email me for a better Return On "YOUR" Investment. .
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Challenge me with your financial lending needs.
Donald Swart
Mortgage Banker
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