Politics and interest rates

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