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Kiss 4% mortgages goodbye!
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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:
Such as the Fed keeping their RATE incredibly LOW, during the Housing Boom, in the wake of the Community Reinvestment Act, and the Mortgage Brokers were giving loans to bums without jobs, without credit, and no way to pay back the loan they had just taken over.
It is my opinion, this FALSE credit that the Fed created by keeping their rate artificially low during a time of HUGE HOUSING BOOM, helped lead to the greedy actions of some of these Mortgage Brokers and Banks, and not to mention, the regulators just stopped regulating. Then after the biggest banks in the country and Mortgage Companies as well, and Freddie and Fanny, had all these crazy derivatives that they made with the worthless bundled loans, to make people want to buy them, the banks and mortgage companies went bankrupt after the economy had the slightest downturn and BOOM, we've got the Mortgage Crisis, and the largest recession since the Great Depression.
The Fed was wrong, and helped to create this false credit that should not have been there during a time of huge boom.
The Fed Rate can also be raised in order to try and stifle INFLATION, and that I agree with. Inflation is a silent and deadly TAX, that hurts people that SAVE MONEY.
Inflation is GOOD for people that spend like drunk sailors, have houses they cannot afford, and have DEBTS (Credit Card, Car loans, ect) because hopefully, the salaries in a few years will meet the new inflated worth of the now more worthless dollars, and you now technically, owe less, because those dollars you still owe, aren't worth quite as much.
Q2E, will create some inflation, and I think that is what the government wants... make their crazy debts hurt less, by making our currency more worthless. Decrease the buying power of the dollar via inflation.
The raising of the FED rate CAN be a very good thing. Less easy credit, people might actually start to look at someone's job, their credit score, and other factors like SAVINGS, before they will give them a loan for anything, be it Car or Home. It could help to stop the ridiculous spending that Americans got used to before the 2008 Recession.
It will just make it harder for people to get loans, which I think is a good thing. Loaning out money to anyone that has a name and social security number, and is still breathing, without looking at history, credit, savings, ect is what got us into this mess, and if we keep spending like this and incurring debt that we cannot pay, the same thing will just happen again.
So it is my belief that raising the Fed Rate would be a good thing once inflation hits, when the economy starts getting hot again, and for the fact that maybe they will make it harder to get loans, so this whole big F' up doesn't happen again.
Some even say that the crash of 2008 was so obviously orchestrated, and the Fed, and the Treasury, Big Banks, the regulators and other politicians had such a close relationship, that the crash of 2008 was by design. :sly: Remember Barney Frank in front of Congress for YEARS before the Crash lying and telling everyone that Fannie and Freddie were perfectly OK, and there was no need to worry about them or the Big banks! Do you remember that?
We had John McCain, Ron Paul, even President Bush talked to the Congress about the trouble that they could see coming and NOBODY listened... they just acted like they were a BUNCH of KOOKS! The Democrats in Congress would do nothing to stop this! There is VIDEO evidence on youtube of all of this. You can go watch it for yourself.
After all, ONE DAY, Paulson just came up out of the blue, and said that if we don't give A HUGE amount of taxpayer money to these Banks, that the economy will crash tomorrow. So we gave him the money, and then nobody could tell us where it all went. Well a lot of it went to go pay Big Bank CEO's who got bonuses of 30 million dollars each that year of tax payer money! I call THAT a good year! Wouldn't you?
Who got the most MONEY? Government Sachs... ohh excuse me... Goldman Sach's... Hey! Wasn't Paulson the FORMER CEO OF GOVERNMENT SACHS?!?!?
HMMMM?!?!?!, that's not weird at all... :sly:
We've got the biggest Good Ole' Boy, scratch your back and I'll scratch yours relationship between the Fed, the Treasury, Regulators, Big Business, and current and past politicians that we've ever seen. Ohh the little guy on mainstreet? Screw him, he doesn't need a job. We'll just get him hooked on that gubmint money... there is unemployment, welfare, food stamps, ect... Get 'em hooked! Have them crawling back to that Big Mama Gubmint... don't worry... she'll take care of you.
Its a great way to make the general population NEED you, Job Security. Then talk about all the ways you're going to fix the economy and create jobs through the government, taxpayer money and debt, when you cannot create real jobs through government spending... ONLY small business creates any jobs in America. They are the furnace that creates the heat that keeps our economy alive. But screw the small businesses, we don't need them, we've got the Gubmint to take care of us!
Its disgusting.
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.
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:
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.
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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:
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.
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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:
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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:
It would be very easy to check, especially if one's filing status, income, mortgage, and other particulars will remain about the same from 2010 through 2011. To check, just file using whatever software you'd normally use, saving as the primary filename the one you'll Efile to the IRS. Save a separate filename(one not easily confused with the "working" filename), then tab to the mortgage deduction. Subtract all the mortgage interest deduction, but not the property tax, and note the resulting tax obligations. Also, play with the numbers to reflect paying off a large chunk, versus all.
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:
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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:
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