Interest Rates and Your MortgagHome Loan
When you are attempting to time the best time to borrow for your house, picking a time when interest rates are lower will save you a lot of money. If you think interest rates are going to increase, you will want to lock in a lower rate now, but if you think rates may still fall considerably, you will want to wait before you commit to a mortgage.
Understanding how interest rates behave, and what influences them, will help you make an educated guess about the direction they will take. The first thing to realize is that interest rates are actually the price of money and like all prices, they are determined by supply and demand.
The first factor to examine in terms of interest rates is the inflation rate. Inflation is measured by two important indicators called price indicators. These include the producer price index as well as the consumer price index.
PPI is the change in prices at the level where goods are produced. Consistently rising PPI, raising prices of finished goods, will render all goods more expensive and lead to inflation.
CPI, or Consumer Price Index is the difference in prices at the consumer level, as measured by a standard basket of goods. This is a very important signal of inflation since this is what we will all pay for our goods. The basket of goods used is indicative of the kinds of goods consumers usually buy, and because it includes food and energy prices, which can move up and down too much, they are frequently removed from of the equation. This leaves what is considered the ?core? inflation rate which is a superior indicator of general prices and inflation.
GDP is another relatively good predictor of inflation and interest rates. The Fed (Federal Reserve Bank-the Central Bank of the United States) is responsible for keeping the economy on an even keel-not a lot of growth, which will cause inflation and not too little, which will cause a recession. The Fed has the power to intervene in the economy in a number of ways so that it can decrease rates to slow the economy down and increase rates to speed it up.
The next very important interest rate indicator is the unemployment level. Low unemployment will typically lead to inflation, since it leads to higher wages which will lead to higher prices. High unemployment will typically lead to lower interest rates since it means lower wages and therefore lower prices. Higher wages lead to price spirals while lower wages give way to to prices falling.
The prospective home purchaser can help himself by watching these indicators to attempt to determine rates. The rule of thumb is that a slow economy with elevated unemployment will mean that rates will be falling. Increasing GDP and reduced unemployment means the economy is picking up and you can expect increased interest rates in the future.
No Comments to “Interest Rates and Your MortgagHome Loan”