Pol­i­tics and in­ter­est rates

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Are pol­i­tics in­ter­re­lated with in­ter­est rates? If by pol­i­tics we mean gov­ern­ment fis­cal and eco­nomic and for­eign poli­cies, the an­swer is Ab­so­lutely. When I was very young I re­mem­ber rel­a­tives speak­ing about other coun­tries hav­ing in­fla­tion of 20 per­cent-plus and about gov­ern­ments pro­hibit­ing money leav­ing their coun­tries. Was it in Ger­many more than six decades ago that a wheel­bar­row of pa­per­money was re­quired at the gro­cery store?

His­tory, if stud­ied, does give us some lessons worth re­mem­ber­ing. The poli­cies and pol­i­tics of our gov­ern­ment do come close to home for al­most all of us. And nowhere more per­sonal will gov­ern­ment and po­lit­i­cal poli­cies be felt than in in­ter­est rates for our home mort­gages. Par­tic­u­larly now, in­ter­est rates are greatly af­fected by our gov­ern­ment deal­ing with world lead­ers and threats of vi­o­lence.

What are the fac­tors or vari­ables that are out of our con­trol and in the hands of elected and ap­pointed of­fi­cials that de­ter­mine the cost of bor­row­ing? They are many. A short list would in­clude the Fed­eral Re­serve at the top fol­lowed by gov­ern­ment spend­ing, the quan­tity of trea­sury bonds for sale, goals of for­eign in­vestors, U.S. stock mar­ket val­ues, and un­em­ploy­ment rates. If you are buy­ing or re­fi­nanc­ing a home, pay­ing at­ten­tion to pol­i­tics can save you money.

We have lit­tle con­trol over fu­ture in­ter­est rates. We can only watch and plan how to pro­tect our in­vest­ments. Our own Fed­eral Re­serve has a rea­son for keep­ing in­ter­est rates mod­est be­cause it is con­stantly sell­ing trea­suries. Higher rates in­crease the amount re­quired to ser­vice the gov­ern­ment trea­suries, putting more pres­sure on our gov­ern­ment bud­get.

What do we do with this in­for­ma­tion? If rates are to rise next year, what do we do now? Get all the fi­nanc­ing you need, soon. Re­mem­ber a 1 per­cent rise in the cost of a home­m­o­rt­gage­may cost you an ex­tra 20 per­cent over 10 years.

I watch the yield on the 10-year U.S. trea­sury bond. As the yield di­min­ishes, we see in­ter­est rates re­main­ing low and even go­ing lower. What hap­pens is that in­vestors fear stock mar­ket fluc­tu­a­tions and in­vest in bonds as a safe haven. Bond yields in­flu­ence mort­gage in­ter­est rates. Af­ter all, a mort­gage is like a bond.

Plan as care­fully as pos­si­ble by get­ting sound ad­vice from ex­perts, and don’t get caught by the forces of change that in­evitably will oc­cur.

Jim Gay was a real-es­tate bro­ker for more than 20 years and has been a con­sul­tant to For­tune 500 com­pa­nies. He is cur­rently a bro­ker/owner ofThe Mort­gage Place Inc. (505-986-9080) and can be reached at jim@jim­gay­home­m­o­rt­gage.com

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