Interest Rates and Your MortgagHome Loan
When you are trying 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. Those who think rates will increase want to buy now and take advantage of currently lower rates, and those who think they will decrease want to wait until a more opportune time.
What determines interest rates depends on a lot of factors, so knowing what they are and how they operate can help you make a decision. If you regard interest rates as the price of money, and realize 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 influences on interest rates. The inflation rate has two major indicators. These are the producer price index and the consumer price index.
PPI is the measure of differences in prices in a given length of for goods at the production level. Increases in the Producer Price Index gives us higher prices for finished goods, and that translates to inflation.
CPI, or Consumer Price Index is the difference in prices at the consumer level, as determined by a standard basket of goods. CPI is more well known to most people because it indicates whether the prices we are paying are rising or falling, and by how much. Certain segments of CPI can ?skew? the percentages, so analysts frequently remove changes in food and oil prices, which are often too volatile. The remaining items form the core inflation rate, which will indicate to us how prices will perform in the future.
Gross Domestic Product is another inflation, and therefore interest rate, indicator. The Fed (Federal Reserve Bank-the Central Bank of the United States) is responsible for maintaining the economy on an even keel-not too much growth, which will cause inflation and not too little, which may 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.
An additional important indicator is the unemployment rate. If the economy has low unemployment, inflation will probably follow since salaries have to go up to bring in candidates. If the economy has high unemployment, interest rates will go down because salaries will fall because employers do not feel compelled to offer higher salaries to keep workers. Higher wages lead to price spirals while lower wages give way to to prices falling.
It can be very beneficial to a prospective homebuyer to keep on top of these kinds of economic indicators to understand what is happening in the interest rate arena. In general, a slow economy, with high unemployment, will mean that interest rates will be coming down, and you should hold off on your loan for a while. Increasing GDP and low unemployment means the economy is picking up and you can expect increased interest rates in the future.
What determines interest rates depends on a lot of factors, so knowing what they are and how they operate can help you make a decision. If you regard interest rates as the price of money, and realize 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 influences on interest rates. The inflation rate has two major indicators. These are the producer price index and the consumer price index.
PPI is the measure of differences in prices in a given length of for goods at the production level. Increases in the Producer Price Index gives us higher prices for finished goods, and that translates to inflation.
CPI, or Consumer Price Index is the difference in prices at the consumer level, as determined by a standard basket of goods. CPI is more well known to most people because it indicates whether the prices we are paying are rising or falling, and by how much. Certain segments of CPI can ?skew? the percentages, so analysts frequently remove changes in food and oil prices, which are often too volatile. The remaining items form the core inflation rate, which will indicate to us how prices will perform in the future.
Gross Domestic Product is another inflation, and therefore interest rate, indicator. The Fed (Federal Reserve Bank-the Central Bank of the United States) is responsible for maintaining the economy on an even keel-not too much growth, which will cause inflation and not too little, which may 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.
An additional important indicator is the unemployment rate. If the economy has low unemployment, inflation will probably follow since salaries have to go up to bring in candidates. If the economy has high unemployment, interest rates will go down because salaries will fall because employers do not feel compelled to offer higher salaries to keep workers. Higher wages lead to price spirals while lower wages give way to to prices falling.
It can be very beneficial to a prospective homebuyer to keep on top of these kinds of economic indicators to understand what is happening in the interest rate arena. In general, a slow economy, with high unemployment, will mean that interest rates will be coming down, and you should hold off on your loan for a while. Increasing GDP and low unemployment means the economy is picking up and you can expect increased interest rates in the future.
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