This BLOG On Overview Of Mortgage Markets And Interest Rates Was Written By Ron Granado
The Mortgage Markets And Interest Rates and related markets have seen a couple of trends in recent weeks.
- The first and foremost is rising interest rates when analyzing Mortgage Markets And Interest Rates
- Ultimately, in order for an economy to grow in a Fractional reserve capitalistic economy, you need some level of inflation
- Short term inflation can be dangerous for sudden upticks in the pricing of food, fuel (not included in the core inflationary index), borrowing, these sudden changes can make life very difficult for families on limited residual income
In this article, we will discuss and cover the Overview Of Mortgage Markets And Interest Rates.
Long Term Inflation Mortgage Markets And Interest Rates
Long term inflation is necessary and can be reflected in higher long term borrowing such as 10-30 year bonds. What are bonds?
- They are debt instruments
- Some investment firms use bonds to create capital by securitizing debt
- This is done with a promise to pay the full amount back at a later date with semi-annual interest earned along the way
Bonds are used to creating capital for corporations, for public projects, for government liquidity to pay current obligations, and for riskier ventures like technology, medical research, casinos, etc.
Risk Levels On Bonds
- The riskier the bond is to pay back, the higher the interest rate of return
- Risk versus rewards concept
- Governments are seen as the safest investments
- Especially on the federal side because they have the ability to both raise taxes, and print money
- Bonds, in general, are more desirable as an investment
- This because in case of bankruptcy of a corporation or just a dividend payout, in general, the bond investors will get their money back before stockholders do
What does this mean to the conversation of mortgages?
Bonds And Mortgage Markets
When interest rates rise, investors who own bonds see the underlying value of their investment lose face value. Inflation or a rise in interest rates does exactly that.
- Rising rates will raise the value of the dollar
- But will hurt the purchasing power at the same time since the growth of businesses is largely based on their ability to borrow and leverage
- When their cost of borrowing goes up, their cost of business goes up since they have to charge ore to recoup the interest they pay on loans
- The government is the same way
- For instance, when states like Illinois or California or Rhode Island get downgraded as an investment because of repayment risk, that is due to their debts being higher than their income
- Just like a citizen, they must now pay a higher interest rate to investors when they borrow money to pay for things like pension obligations, which also go up
- This causes a rise in taxes, and regulatory costs since those municipalities must increase the cost of business to pay the higher cost of the benefit
This is one of the main reasons cities are so expensive.
- Less space, fewer resources, and too many benefits to citizens raise the cost of living, as they attempt to raise the standard of living
- Most businesses and cities that are insolvent don’t have a cash problem, they have a cash flow problem
Mortgage Markets And Interest Rates
This article was written by Mr. Ron Granado. Ron Granado is a veteran title officer and an expert real estate professional with expertise in the title, mortgages, appraisals, insurance, and law. Mr. Ron Granado is a guest financial writer for Gustan Cho Associates and is a consultant to many attorneys, realtors, homeowners, and mortgage industry professionals.
Ron Granado
Account Executive | Plymouth Title Guaranty Corp
1301 W. 22nd Street | Ste 505 | Oak Brook, IL 60523
630-300-3900 | ron@plymouthtitleinsurance.com
