What are Interest Rates Up to? Should I Buy a House?
Of the many decisions you try to make correctly when you are deciding on a home loan, timing the interest rate may be one of the biggest. Will interest rates increase, in which case you should lock in a fixed rate home loan for as long as you can, or are they headed down, which means you should either put off buying or refinancing, or choose a rate that adjusts frequently?
What determines interest rates depends on many factors, so knowing what they are as well as how they behave can help you make a decision. The price of money is interest rates, so if you understand what will affect the price of money, you will know better what affects interest rates, including your mortgage rate.
The most important precursor of interest rates is inflation. There are two major culprits when it comes to inflation. The PPI (Producer Price Index) and the CPI (the Consumer Price Index).
The Producer Price Index (PPI) measures the changes in the prices producers need to pay to produce items. Increases in the Producer Price Index means higher prices for finished goods, and that translates to inflation.
CPI is the change in prices at the consumer level and is calculated by the overall costs in a basket of items defined by the government statisticians. 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. The so called ?basket of goods? used is consistent so that economists can measure how prices change, but since food and energy are included, they are often eliminated to lower volatility. This leaves what is considered the ?core? inflation rate which is a superior indicator of overall prices and inflation.
GDP or Gross Domestic Product also predicts inflation and consequently interest rates. The Federal Reserve Bank tries to keep the economy on a even level, with neither too much nor too little growth, which respectively result in inflation or recession. The Fed has certain tools to influence interest rates and will use them to increase 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 is considered inflationary since employers have to chase after too few candidates, and will raise wages to do this. High unemployment usually leads to lower interest rates eventually since employers can keep wages down since there are so many candidates for each job. In other words, increased wages lead to a wage price spiral and lower wages bring prices down.
If you are thinking about a loan, it is to your advantage to watch these indicators to target the best timing to enter the loan market. In general, a slowing economy, with high unemployment, means that interest rates will be falling, and you should hold off on your loan for a while. On the other hand, higher GDP and decreasing unemployment will mean an increase in interest rates. - 23211
What determines interest rates depends on many factors, so knowing what they are as well as how they behave can help you make a decision. The price of money is interest rates, so if you understand what will affect the price of money, you will know better what affects interest rates, including your mortgage rate.
The most important precursor of interest rates is inflation. There are two major culprits when it comes to inflation. The PPI (Producer Price Index) and the CPI (the Consumer Price Index).
The Producer Price Index (PPI) measures the changes in the prices producers need to pay to produce items. Increases in the Producer Price Index means higher prices for finished goods, and that translates to inflation.
CPI is the change in prices at the consumer level and is calculated by the overall costs in a basket of items defined by the government statisticians. 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. The so called ?basket of goods? used is consistent so that economists can measure how prices change, but since food and energy are included, they are often eliminated to lower volatility. This leaves what is considered the ?core? inflation rate which is a superior indicator of overall prices and inflation.
GDP or Gross Domestic Product also predicts inflation and consequently interest rates. The Federal Reserve Bank tries to keep the economy on a even level, with neither too much nor too little growth, which respectively result in inflation or recession. The Fed has certain tools to influence interest rates and will use them to increase 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 is considered inflationary since employers have to chase after too few candidates, and will raise wages to do this. High unemployment usually leads to lower interest rates eventually since employers can keep wages down since there are so many candidates for each job. In other words, increased wages lead to a wage price spiral and lower wages bring prices down.
If you are thinking about a loan, it is to your advantage to watch these indicators to target the best timing to enter the loan market. In general, a slowing economy, with high unemployment, means that interest rates will be falling, and you should hold off on your loan for a while. On the other hand, higher GDP and decreasing unemployment will mean an increase in interest rates. - 23211
About the Author:
Thank you for visiting this article.You may be interested interm insuranceandwhole life insurance
posted by X - Men @ 4:54 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home