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Q: Prime Interest Rate on Mortgages ( Answered 5 out of 5 stars,   0 Comments )
Subject: Prime Interest Rate on Mortgages
Category: Miscellaneous
Asked by: debmargal-ga
List Price: $10.00
Posted: 03 Feb 2004 12:22 PST
Expires: 04 Mar 2004 12:22 PST
Question ID: 303223
What is the concenus about interest rates for mortgages either
increasing, decreasing, or staying the same over the next couple
years?  In other words, is an adjustable mortgage advisable?
Subject: Re: Prime Interest Rate on Mortgages
Answered By: ragingacademic-ga on 03 Feb 2004 14:37 PST
Rated:5 out of 5 stars
debmargal - a very interesting question, and thanks for submitting it to our forum.

The very first consideration - regardless of the macroeconomic
situation - has to do with the number of years you are planning to
live in your current home.  If you know, for a fact, that it's 2,3, or
5 years - you would do best to get the relevant adjustable rate
mortgage (i.e. 2,3, or 5 year adjustable) because you will always pay
far less than with a fixed rate mortgage.

However, if you are planning to stay in your home for 15 years or
more, given that mortgage rates are currently at 40 year lows, you
should close on a fixed mortgage.  The probability of rates moving
significantly lower is very very  small...

As for the economy - analyst consensus following the last meeting of
the Fed late last month (January 2004), is that the Fed will raise
rates within the year.  See for example -

In the previous meeting, the Fed had issued a statement saying that it
could maintain the Federal Funds Rate at 1% "for a considerable period
of time" but in this latest meeting that phrase was removed, prompting
speculation that the Fed will, indeed, move to raise rates within
several months.  This will happen if the economy continues to show
signs of a recovery, but such signals are yet to show consistency. 
For example in the third quarter of 2003 growth in the US topped 8%,
but growth in the fourth quarter, traditionally the most robust,
dropped back to a more modest 4% - still wonderful, but not quite
enough to produce the number of jobs this nation needs to move out of
the current economic malaise.

Another important factor to take into consideration is happy-go-lucky
Bush's budgetary policy - this guy is spending money as if he was born
democratic... :-)  The following analysis by Noble prizewinning
economist Stiglitz is very telling of where we are headed...

What does means is that in the long run, given the inevitability of
continuing growth in the demand for money, interest rates will rise,
and of course mortgage rates will rise right along with them.

So, consensus does seem to be that within six months or so interest
rates will begin to rise.  You should therefore only risk an
adjustable mortgage if you know you will be moving out of this current
house within five years or less, as I advised in the beginning of this

Please feel free to ask additional questions until you are comfortable
with my response.

thanks and good luck,

Clarification of Answer by ragingacademic-ga on 06 Feb 2004 22:52 PST
debmargal - hello. I wanted to check in with you and see that the
information I had provided you with was satisfactory.

Please do let me know if you are in need of anything else in relation
to this question.

debmargal-ga rated this answer:5 out of 5 stars
Thank you so much for your help!

There are no comments at this time.

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