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You are correct. That rate is based on the rate that the FED will loan out money. The Fed is often known for making WRONG predictions about what is going to happen in the future, and they are also WRONG a lot about changing the FED rate, and its impact.MrMorden said:Hmm...aren't all these rates based off what the Fed sets as the bank borrowing rate? From what I've read, if the Fed raises its rate by just 1%, it does not have enough money to cover all its QE/QE-lite/QE2 interest, and will be basically bankrupted.
No where in this post do you discuss the interest you are paying.45_Fan said:Now if only savings rates can start to claw their way back.
Overall I have mixed feelings though. I don't intend to pay off the current house* even though I will have the money at some point. Long term I'd like to buy for cash and then build or renovate on a construction loan that I pay with equity when I sell and move. Higher rates help my savings grow in the mean time but impact what I could do in the future and the price I could get when selling.
*If I were planning to stay 20 more years, I would pay it off. My reasoning is that in a few years I would be sitting on 100% equity and 10% cash making any move very tight on the budget. Instead I plan be at 40-60% equity and about 65% of the cash needed for the next place. The goal of selling the current place will be to pay the realtor and walk into the next house 100% debt free.
5.75%Hock25 said:No where in this post do you discuss the interest you are paying.
[p.s. pay off your mortgage]
I know someone who could help you out if you're looking for a refi. Doesn't live too far from you, either...45_Fan said:5.75%Hock25 said:No where in this post do you discuss the interest you are paying.
[p.s. pay off your mortgage]
I only plan on being in the current place 5-7 more years. I haven't found a refi that would have saved me anything over that interval. If I intended to stay 12+ years, it would be a good move.
Convince me that no mortgage trumps liquidity the year I move and I'm all ears.
If I was planning to stay a bit longer or had a slightly higher rate that would have already happened...budder said:I know someone who could help you out if you're looking for a refi. Doesn't live too far from you, either...
You may be doing the best thing then. A buddy of mine just refinanced for free, from 6% down to 4%. It was no cost, and his mortgage company offered it first, fearing he and other homeowners would jump ship if they didn't offer it up before other mortgage companies.45_Fan said:5.75%Hock25 said:No where in this post do you discuss the interest you are paying.
[p.s. pay off your mortgage]
I only plan on being in the current place 5-7 more years. I haven't found a refi that would have saved me anything over that interval. If I intended to stay 12+ years, it would be a good move.
Convince me that no mortgage trumps liquidity the year I move and I'm all ears.
When factoring in the tax deduction and even minor (2-3%) inflation, the true cost of a 5-6% mortgage is very low. In the 4% range is is almost a free lone.Hock25 said:I just think of a mortgage as a parking meter adjacent to the mailbox. With a mortgage, every hour of every day, the homeowner figuratively walks out into the cold and snow in his/her slippers and robe and feeds the bank a dollar or more per hour.
With inflation, I honestly don't know. A co-worker of mine is waiting to payoff his mortgage with future, inflated dollars, ala your example. As for a tax deduction, I don't think it deducts as much as many think, although the benefit will vary for all. As for a low interest loan, I suppose it depends on if you have specific plans for the money, such as funding other investments.AEKDB said:I think the demand for mortgages will have a significant downward pressure on the rate.
When factoring in the tax deduction and even minor (2-3%) inflation, the true cost of a 5-6% mortgage is very low. In the 4% range is is almost a free lone.Hock25 said:I just think of a mortgage as a parking meter adjacent to the mailbox. With a mortgage, every hour of every day, the homeowner figuratively walks out into the cold and snow in his/her slippers and robe and feeds the bank a dollar or more per hour.
I think a return to real risk assessment will put an upward pressure on it as less lenders choose more risk. I don't see how a 4% 30-year mortgage is profitable for any lenders. Any early payment will erode that 4% quickly and a foreclosure is a shot to the knees. 4% returns minus any overhead and those risks are really hard pressed to beat inflation (or better investments) over the next 30 years. In theory, good growth/returns over the long term average 6%.AEKDB said:I think the demand for mortgages will have a significant downward pressure on the rate.
Banks make money at zero percent. The loan is entered on both sides of the ledger, asset and liability. Any interest is entered as an asset. A zero percent loan makes asset entries from the loan fees(overhead more than covered, since it exists in software, not a brick-and-mortar building or a safe). Banks can not lose, even if the loan defaults, since it is guaranteed by us, the taxpayer. We, the taxpayer, cover the liability of the loan's principal. The bank can absorb multiple bad loans by folding into other banks. Four percent means more loans, more assets entries. Ten percent, fewer loans, fewer asset entries, but perhaps more asset totals due to higher interest.45_Fan said:I think a return to real risk assessment will put an upward pressure on it as less lenders choose more risk. I don't see how a 4% 30-year mortgage is profitable for any lenders. Any early payment will erode that 4% quickly and a foreclosure is a shot to the knees. 4% returns minus any overhead and those risks are really hard pressed to beat inflation (or better investments) over the next 30 years. In theory, good growth/returns over the long term average 6%.AEKDB said:I think the demand for mortgages will have a significant downward pressure on the rate.
Point taken.Hock25 said:Banks make money at zero percent. The loan is entered on both sides of the ledger, asset and liability. Any interest is entered as an asset. A zero percent loan makes asset entries from the loan fees(overhead more than covered, since it exists in software, not a brick-and-mortar building or a safe). Banks can not lose, even if the loan defaults, since it is guaranteed by us, the taxpayer. We, the taxpayer, cover the liability of the loan's principal. The bank can absorb multiple bad loans by folding into other banks. Four percent means more loans, more assets entries. Ten percent, fewer loans, fewer asset entries, but perhaps more asset totals due to higher interest.
Ain't no thang. I've only recently learned this myself, and the "Jekyl Creature" book is driving the point home.45_Fan said:Point taken.Hock25 said:Banks make money at zero percent. The loan is entered on both sides of the ledger, asset and liability. Any interest is entered as an asset. A zero percent loan makes asset entries from the loan fees(overhead more than covered, since it exists in software, not a brick-and-mortar building or a safe). Banks can not lose, even if the loan defaults, since it is guaranteed by us, the taxpayer. We, the taxpayer, cover the liability of the loan's principal. The bank can absorb multiple bad loans by folding into other banks. Four percent means more loans, more assets entries. Ten percent, fewer loans, fewer asset entries, but perhaps more asset totals due to higher interest.
I forgot that it was more than just the mortgagee that could duck responsibility...