Interest Rates and Your MortgagHome Loan
If you are thinking about buying a house or refinancing your present home, you probably are asking yourself if this is the right time. Will interest rates go up, in which case you should lock in a fixed interest mortgage for as long as you can, or are they headed down, which means you should either wait to buy or refinance, or choose a rate that adjusts frequently?
What determines interest rates depends on a lot of factors, so knowing what they are and how they operate can help you make your decision. If you look upon interest rates as the price of money, and understand that factors like supply and demand influence all prices, you can see how the ?price? of money can even affect your mortgage.
Inflation is one of the most important factors in interest rates. Inflation is measured by two important indicators called price indicators. The PPI (Producer Price Index) and the CPI (the Consumer Price Index).
The Producer Price Index (PPI) measures the changes in producers producers need to pay to produce items. If PPI is rising, this will mean that the cost of finished goods is more, which will lead to inflation.
CPI is the difference in prices at the consumer level and is calculated by the overall costs in a basket of goods defined by the government statisticians. Most consumers are more familiar with CPI since it more directly has an affect on what they pay for goods. Often, to remove some of the volatility of the CPI, analysts will look at core inflation, which eliminates energy and food prices from the formula. This allows them to look at the core inflation rate to better analyse where overall prices, and therefore inflation, are going.
GDP is the next typically used indicator of how inflation and in turn interest rates will behave. The Federal Reserve Bank tries to maintain the economy on a smooth level, with neither too much nor too little growth, which respectively cause inflation or recession. The Fed has some tools to influence interest rates and will use them to raise rates when it wants to slow the economy down and decrease them when it needs to help the economy to pick up.
The unemployment rate is another major part of the economy that affects interest rates. Low unemployment tends to lead to inflation, since it will lead to higher wages which will lead to higher prices. If unemployment is up, the resulting lower wages will mean inflation will be down. In other words, increased wages lead to a wage price spiral and decreased wages bring prices down.
The prospective home purchaser can help himself by keeping an eye on these indicators to attempt to determine rates. The bigger picture to watch out for is a falling GDP with unemployment which leads to lower rates. Conversely, higher GDP and decreasing unemployment will signal an increase in interest rates.
What determines interest rates depends on a lot of factors, so knowing what they are and how they operate can help you make your decision. If you look upon interest rates as the price of money, and understand that factors like supply and demand influence all prices, you can see how the ?price? of money can even affect your mortgage.
Inflation is one of the most important factors in interest rates. Inflation is measured by two important indicators called price indicators. The PPI (Producer Price Index) and the CPI (the Consumer Price Index).
The Producer Price Index (PPI) measures the changes in producers producers need to pay to produce items. If PPI is rising, this will mean that the cost of finished goods is more, which will lead to inflation.
CPI is the difference in prices at the consumer level and is calculated by the overall costs in a basket of goods defined by the government statisticians. Most consumers are more familiar with CPI since it more directly has an affect on what they pay for goods. Often, to remove some of the volatility of the CPI, analysts will look at core inflation, which eliminates energy and food prices from the formula. This allows them to look at the core inflation rate to better analyse where overall prices, and therefore inflation, are going.
GDP is the next typically used indicator of how inflation and in turn interest rates will behave. The Federal Reserve Bank tries to maintain the economy on a smooth level, with neither too much nor too little growth, which respectively cause inflation or recession. The Fed has some tools to influence interest rates and will use them to raise rates when it wants to slow the economy down and decrease them when it needs to help the economy to pick up.
The unemployment rate is another major part of the economy that affects interest rates. Low unemployment tends to lead to inflation, since it will lead to higher wages which will lead to higher prices. If unemployment is up, the resulting lower wages will mean inflation will be down. In other words, increased wages lead to a wage price spiral and decreased wages bring prices down.
The prospective home purchaser can help himself by keeping an eye on these indicators to attempt to determine rates. The bigger picture to watch out for is a falling GDP with unemployment which leads to lower rates. Conversely, higher GDP and decreasing unemployment will signal an increase in interest rates.
About the Author:
Thank you for reading this article.Just click onmortgage disability insurance canadaand don't forgetlow cost life insurance canada
You like it? Share it!
posted by SolveItQuick at
8:16 AM
0 Comments:
Post a Comment
<< Home