Interest Rates and Your Mortgag
by Carlota R. Schneider
If you are considering buying a home or refinancing your present one, you probably are wondering if this is the right time. If you think interest rates are going to increase, you will want to lock in a lower rate now, but if you think rates can still fall considerably, you will want to wait before you commit to a home loan.
A comprehension of how interest rates behave, and what influences them, will help you decide about the direction they will take. If you look upon interest rates as the price of money, and realize that factors like supply and demand influence all prices, you can see how the “price” of money can even have an effect on your mortgage.
Inflation is one of the very important influences on interest rates. The inflation rate has two major indicators. These are the PPI and the CPI, the producer price index and the consumer price index.
The Producer Price Index (PPI) measures the changes in producers producers need to pay to produce goods. If PPI is rising, this will mean that the cost of finished goods is more, which mean inflation.
The Consumer Price Index (CPI) measures changes in prices of a given “market basket” of consumer goods. It is considered the most important component of inflation, since increasing prices that consumers pay for goods are the basis of inflation. Certain segments of CPI can “skew” the results, so analysts frequently remove changes in food and oil prices, which are often too volatile. This allows them to look at the core inflation rate to better analyse where overall prices, and therefore inflation, are heading.
Gross Domestic Product is an additional inflation, and therefore interest rate, indicator alberta mortgage rate. The Fed (Federal Reserve Bank-the Central Bank of the United States) is responsible for maintaining the economy on an even keel-not a lot of growth, which will cause inflation and not too little, which may cause a recession. The Fed has the tools to intervene in the economy in certain ways so that it can decrease rates to slow the economy down and increase rates to speed it up.
Another important indicator is the unemployment level. If the economy has low unemployment, inflation will probably follow since salaries have to go up to bring in candidates. High unemployment usually leads to lower interest rates eventually since employers can keep wages down since there are so many candidates for each position. Lower wages equal lower prices which equals lower inflation.
It can be very beneficial to a prospective homebuyer to keep on top of these kinds of economic indicators to know what is happening in the interest rate market. The rule of thumb is that a slow economy with elevated unemployment will mean that rates will be falling. Increasing GDP and low unemployment means the economy is picking up and you can expect higher interest rates in the future. calgary mortgage rates
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