Rates are ris­ing

Home - Santa Fe Real Estate Guide - - MORTGAGEMATTERS SANTA FEREÁL -

Here we go again. The econ­omy gets stronger and the Fed starts to raise rates, thereby in­creas­ing the cost of money. What should we know about this process and how do we pro­tect our as­sets?

The rate that the Fed charges to com­mer­cial banks ( the dis­count rate) is start­ing to in­crease and cor­re­spond­ingly the rates for all your bank loans will in­crease. Also, mort­gage rateswill in­crease: the price of suc­cess, we sup­pose.

We are told that the rais­ing of the Fed rate is nec­es­sary in or­der to slow in­fla­tion. And that we have more in­fla­tion be­cause the econ­omy is ex­pand­ing. Com­pa­nies have ex­panded sales and there­fore can now in­crease the cost of their prod­ucts and ser­vices. The aver­age con­sumer is caught ex­pe­ri­enc­ing higher prices for prod­ucts and then the Fed rate goes up.

As the fed rate in­creases, the com­mer­cial banks will in­crease their in­ter­est rates to con­sumers for car loans, eq­uity loans, and mort­gage loans. All of this adds to the in­creased costs of prod­ucts and bor­row­ing for the con­sumer.

Are there off­set­ting ben­e­fits to con­sumers? Mean­ing are there ar­eas that will in­crease wealth for the con­sumer and not just in­crease wealth for the banks? Yes, there are. Sav­ings ac­counts and cer­tifi­cates of de­posit at bankswill yield higher in­ter­est for the con­sumers at this time. In­vest­ment ac­counts for re­tire­ment in­vest­ments will also in­crease in earn­ings as the rates in­crease. This means keep your re­tire­ment ac­counts in­vested so they can in­crease in value. Con­ser­va­tive in­vest­ing will yield more wealth in times of Fed rate in­creases. This is the his­toric model that re­peats it­self.

Also, in times of in­fla­tion and Fed ac­tiv­ity, real-es­tate val­ues tend to in­crease. So, the aver­age home­owner will have more value in his or her home. This also means that if you are con­sid­er­ing pur­chas­ing a home, do it now, be­fore rates and home prices in­crease.

The Fed­eral Re­serve is an in­de­pen­dent or­ga­ni­za­tion out­side of the con­trol of Con­gress. For years it has worked its magic on our mon­e­tary sup­ply and our in­ter­est rates. Watch care­fully and con­sult with your ad­vi­sors in or­der to in­crease your wealth. Pro­tect your in­vest­ments and be­ware of the in­creased costs in­volved in bor­row­ing.

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

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