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The End of the Low Interest Rates Era in Sight?

 

April 02, 2013  |  Loan-America.com Insights

There may be some potential changes to the ultra-low interest rates in the US in the near future. Read below to find out how to take advantage of them while they’re still around. 

The economy, labour markets and stock indexes are all showing conservative yet positive signs of recovery. Many believe the policy interventions of the U.S. Fed have played a big role in facilitating this recovery. 

Some analysts and policy experts, however, have begun questioning the long term fiscal soundness of the easy-money policies for the economy. Most are afraid that the policy response to this crisis may fuel yet a new crisis all together!

To date, to ward off deflation and jump-start the economy, Ben Bernanke, the Chairman of the US Fed, cut the Fed’s benchmark interest rate to zero in 2008 and has since pursued unconventional economic policies – such as buying back junk mortgages – to drive down longer-term rates.

One risk many analysts have pointed out in pursuing a prolonged easy-money and ultra low interest rate policy is that it could indadvertedly encourage speculative activity, undermining the very process of restoring sustainable growth and financial stability to the economy. 

Another risk that some economists have highlighted is the rise of “reaching for yield,” which is a term that applies to investors taking on more risk in their quest for better returns. This becomes more common during low-interest periods, such as the present, when traditionally safe assets offer lower rewards. If interest rates change quickly and investments are illiquid, the added risk could lead to unsustainable liabilities in one’s investment portfolio.  

Finally some analysts believe that given such low interest rates for borrowing, the government also has little to no incentive to cut back on its spending in the short term but will be faced with a sizeable debt in the long term . A that point, given the rate of spending, interest rates are surely to go up to help make appropriate corrections to the macro economic context. 

Given the most recent economic activities, most analysts are unsure if the current stock-market highs, for example, are signs of economic strength to come (i.e. investors being forward-looking) or a reflection of the makings of another bubble. 

Though many experts still see how the short term benefits of pursuing these policies probably outweigh the costs, in light of these insights, may are also concerned that the path being pursued is unsustainable in the long term.

 

How to Take Advantage of these Rates and Circumstances

Though there is little consensus amongst experts that the current policies may lead to a full blown bubble, there are legitimate concerns that we believe the government will take into consideration. The most relevant of which to consumers is that ultra low interest rates will probably rise to normal standards in the long term. In other words, these rates may not be around for much longer. 

In light of this, Loan-America would like to strongly encourage potential consumers to take advantage of the current circumstances and try to enter the housing market as a first time buyer or re-financing an existing mortgage at a lower fixed rate as soon as possible

For help with securing low interest rate mortgages in the California region or other guidance about the right products for home buyers, please call 1-888-LOAN-800 to arrange a consultation or visit us at http://www.loan-america.com/. We’re a trustworthy Californian mortgage company helping ever day consumers refinance their mortgages and make smarter real estate decisions. We look forward to helping you!

 

Sources:

http://news.yahoo.com/former-top-economic-officials-fret-asset-bubbles-195623013--politics.html 

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US Mortgage Rates at All Time Low – Great News for Consumers

September 14, 2012  |  Loan-America.com Insights

In today’s US real estate market, mortgage rates are hovering near record lows, some claiming these to be the lowest in nearly a century, which bode well for prospective new buyers or re-mortgaging consumers.[1] 

The mortgage rates for the week ending Sept.13, 2012 include the following:

-  30-year FRM averaged 3.55 percent this week, unchanged from last week. Last year at this time, the 30-year FRM average was 4.09 percent.[2]

-  15-year FRM this week averaged 2.85 percent, down slightly from last week's average of 2.86 percent. One year ago, the 15-year FRM averaged 3.30 percent. [3]

Mortgage Rates 30 year

Factors contributing to keeping US Treasury bond yields low and, in turn, interest rates at unprecedentedly low levels include turmoil in world economy, investor concern with the European debt and bond markets, and a shaky economic recovery back in the US.

In addition, just yesterday, the Fed announced a new policy – “quantitative easing” – meant to stimulate the economy through a round of bond purchases targeting the mortgage market. This entails the central bank purchasing $85 billion in bonds per month through the rest of the year, and then $40 billion per month indefinitely until the economy requires less support.[4] The policy is intended to continue driving interests rates even lower to help support lending, borrowing and spending.[5] The Fed also supported their policy with strong language claiming they would extend plans to maintain interest rates at ultra-low levels through into mid 2015, and continue supporting the economy “for a considerable time after the economic recovery strengthens.”[6]

What does this mean for consumers and prospective buyers? Well, consumers should look to take advantage of the low rates by getting into the market or re-mortgaging their current deal to lock in at a lower fixed rate as soon as possible.

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