Canada Life Insurance Quote: Interest Rates in the New World of Mortgages
Things have changed drastically in the world of home loans because of recent happenings. What will happen? Will rates continue to decline, or is this the best time to buy?
Tight conditions in the lending world should normally mean lower rates, since lenders would have to lower rates in order to attract customers with good credit ratings. But ironically, banks are tightening their purse strings for all borrowers and even the best cases are seeing higher rates.
Under normal circumstances, this would seem like a bad choice since the usual route to increased earnings is decreased prices. This shortsightedness is not limited to the mortgage industry; credit card companies are doubling and even tripling their rates in reacton to defaults on the part of customers in this dire economic environment.
In the good old days, a slowdown in the markets would usually mean a lowering of interest rates since lenders would try to attract more customers with attractive rates. But with the lending industry in a mess, it seems like none of the old rules apply.
What does all of this portend for someone who wants to decide if this is the best time to borrow for a home? Is it smarter right now to wait out this odd phase, in the hopes rates will fall back down, or take advantage of whatever credit is there before the economy gets worse?
Not only is there a current, there are many who even believe there is a depression coming, which will surely lead to deflation. Deflationary tendencies normally mean decreased to even negative real interest rates, and that would mean borrowers ought to wait a bit longer.
Loans are still being granted. There are quite a few small banks that never got caught up in the credit problems like the larger banks. In this case, being small was better, since many of them were insulated from the issues now haunting most of the credit industry.
A second supporting argument for waiting is that housing prices continue to plummet, with predictions of futher price cuts of as much as 35%, even after the 20 to 25% decreases already seen. A study of home prices conducted by researcher Case-Schiller shows an average decrease of 17%, but some areas with home prices falling 25%. If a combination of lower interest rates and lower housing prices are in store for the future, it may be wise to delay a home buying decision.
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Written by Amber E. Schaller on December 10th, 2009 with
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