Of the many decisions you have to make correctly when you are deciding on a home loan, timing the interest rate may be one of the biggest. If you think rates will go up, you want to purchase now before they do, but if you think they are going to go down, you may want to delay your purchase and take advantage of lower rates.
The interest rate on your mortgage will be influenced by many variables and economic indicators, and having a basic concept of these will help you make your choice. Interest rates are actually the price of money, and just as the law of supply and demand dictates price, the law of supply and demand will influence the price of your mortgage: its interest rate.
The inflation rate, which shows the supply of money, is the first and most important factor in interest rates. There are two major things to watch when it comes to inflation. They are the PPI and the CPI, the producer price index and the consumer price index.
PPI is the measure of change in prices in a given period for goods at the production level. If the prices of raw products increase, you can be sure prices in general will go up.
CPI, or Consumer Price Index is the difference in prices at the consumer level, as measured by a standard basket of goods. This is a very critical signal of inflation since this is what we will all pay for our purchases. The so called ?basket of goods? used is steady so that economists can see how prices change, but because food and energy are included, they are often eliminated to lower volatility. This permits them to look at the core inflation rate to better analyse where overall prices, and therefore inflation, are heading.
GDP is another fairly good predictor of inflation and interest rates. The Federal Reserve Bank attempts to keep the economy growing at a sustainable rate; too slow and production will lag, which causes recession; too fast and the economy may overheat. The Fed has certain tools to control interest rates and will use them to increase rates when it wants to slow the economy down and decrease them when it needs to help the economy to pick up.
An additional important indicator is the unemployment level. Low unemployment is considered inflationary since employers have to chase after too few candidates, and will increase wages to do this. High unemployment will typically lead to reduced interest rates since it means lower wages and therefore lower prices. Lower wages mean lower prices which means lower inflation.
Keeping track of these interest rate indicators will assist you to decide when it is a good time to enter the home loan market. The rule of thumb is that a slow economy with high unemployment will mean that rates will be falling. Growing GDP and low unemployment may signal a faster growing economy and rates will probably be increasing. - 29969
The interest rate on your mortgage will be influenced by many variables and economic indicators, and having a basic concept of these will help you make your choice. Interest rates are actually the price of money, and just as the law of supply and demand dictates price, the law of supply and demand will influence the price of your mortgage: its interest rate.
The inflation rate, which shows the supply of money, is the first and most important factor in interest rates. There are two major things to watch when it comes to inflation. They are the PPI and the CPI, the producer price index and the consumer price index.
PPI is the measure of change in prices in a given period for goods at the production level. If the prices of raw products increase, you can be sure prices in general will go up.
CPI, or Consumer Price Index is the difference in prices at the consumer level, as measured by a standard basket of goods. This is a very critical signal of inflation since this is what we will all pay for our purchases. The so called ?basket of goods? used is steady so that economists can see how prices change, but because food and energy are included, they are often eliminated to lower volatility. This permits them to look at the core inflation rate to better analyse where overall prices, and therefore inflation, are heading.
GDP is another fairly good predictor of inflation and interest rates. The Federal Reserve Bank attempts to keep the economy growing at a sustainable rate; too slow and production will lag, which causes recession; too fast and the economy may overheat. The Fed has certain tools to control interest rates and will use them to increase rates when it wants to slow the economy down and decrease them when it needs to help the economy to pick up.
An additional important indicator is the unemployment level. Low unemployment is considered inflationary since employers have to chase after too few candidates, and will increase wages to do this. High unemployment will typically lead to reduced interest rates since it means lower wages and therefore lower prices. Lower wages mean lower prices which means lower inflation.
Keeping track of these interest rate indicators will assist you to decide when it is a good time to enter the home loan market. The rule of thumb is that a slow economy with high unemployment will mean that rates will be falling. Growing GDP and low unemployment may signal a faster growing economy and rates will probably be increasing. - 29969
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