What will Interest rates be like in Jan 2005?

[PuppetMaster]

Out of curiousity, where do you expect these rates to be?
Will the president election have any bearing?

[AceHigh]

Rates will be higher, they can't really go lower.

Greenspan will be more reluctant to raise rates and influence the election. But his latest comments suggest he is looking at a rate hike sometime this year.

[adios]

Interest rates on what? I suspect you're asking about mortgage rates. The yield curve covers durations of 1 month to 30 years and everything in between. All kinds of different debt securities with all kinds of risk can be had. Interest rates are also extremely volatile IMO. Nobody knows with any certainty what the yield curve will look like 2 years and out for 2005 but my guess is that it will be flatter i.e. the spread between short term and long term interest rates say 2-10 years will be narrower.

[SossMan]

I am on the rate committee for the bank that I work for. We have also projected a flattening of the yield curve over the next 12-18 months. With that in mind, I think that much of the rate hikes have been anticipated by the big players in the mortgage market (WaMu, World Savings, BofA, etc..) and you will not see as sharp an increase in fixed rate product as one might think based on the Fed's actions. However, the big boys are still pricing ARMs significantly lower to entice borrowers to take them. I think the 1,3,5,7 year ARM prices will be proportionatly higher a year from now compared w/ 30/15 year fixed rates.

That's my opinion, but I've been wrong in the past. Not many people thought that we could have maintained these historic lows for this long. Take a look at prepayment rates of MBS (some avg life's of less than 8 months!)

Good luck, PokerPlayer21...I would get that house sooner, rather than later. /images/graemlins/smile.gif

[adios]

"With that in mind, I think that much of the rate hikes have been anticipated by the big players in the mortgage market (WaMu, World Savings, BofA, etc..) and you will not see as sharp an increase in fixed rate product as one might think based on the Fed's actions."

That's my take as well.

"However, the big boys are still pricing ARMs significantly lower to entice borrowers to take them. I think the 1,3,5,7 year ARM prices will be proportionatly higher a year from now compared w/ 30/15 year fixed rates."

Interesting. I think getting a 15 year fixed or even a 10 year fixed is a great way to go.

"That's my opinion, but I've been wrong in the past. Not many people thought that we could have maintained these historic lows for this long. Take a look at prepayment rates of MBS (some avg life's of less than 8 months!)"

What many don't realize about lenders like Countrywide for example is that prepays are a very big negative for earnings. In order for Countrywide to do well with originations, they had to go out and capture a significant portion of the refis that prepaid on their mortgages. Also certain MBS like interest only (IO) paper INCREASES in value as mortgage rates rise. I've found understanding the intricacies of MBS to be a daunting but rewarding task and I've got a long way to go. In order to understand companies involved with mortgages one has to do a lot of work in understanding their business models. As I've stated before, once the business models are understood it's fairly easy to see how they can make money. I've got a long way to go myself in acquiring knowledge.

Thanks for sharing your insight.

[SossMan]

[ QUOTE ]
"However, the big boys are still pricing ARMs significantly lower to entice borrowers to take them. I think the 1,3,5,7 year ARM prices will be proportionatly higher a year from now compared w/ 30/15 year fixed rates."

Interesting. I think getting a 15 year fixed or even a 10 year fixed is a great way to go.


[/ QUOTE ]

If you can afford a 15 or 10 year payment and plan on keeping the home long term, then it's probably not too bad. However, I think that the aggresively priced 5 and 7 year ARMs are even better. Why not get the 5 or 7 year rate (usually about 125 basis points lower than a 15 year) and simply make 10 or 15 year payments. The interest rate risk that you take on years 7-10 (or 7-15) is more than paid for by the lower rate in years 1-7. Also, if you are making payments that amortize your loan in, say, 12 years, the amount of pricipal you have left is significantly lower when the rate adjusts. Total interest cost is probably lower. Additionally, who knows if you will even still have the home in 10-15 years. Statistically, most homeowners move on average every 7 years.

Anyway...that's what I did.

[Wildbill]

I personally think you should never get a 15 year loan except in rare cases. 30 years is always better for the flexibility it gives you and as long as you have a significant balance on that loan, the benefits of tax deductions. Paying off home loans should be one of the last financial moves you choose. Only if you have lots of liquid savings, say 18 months of expenses at your disposal, should you start thinking of paying extra equity down. If you intend on living somewhere a long time, best bet is a 30 year loan. If you are clearly going to a place that you will move out of at some point in the next 5-10 years, then a 5/1 or 7/1 ARM is the way to go. Always minimize your payment and save as much as you can because think about it now, your extra equity payment after tax is earning about 3%. Of course if you are a terrible saver, maybe in that case and that case only could a shorter term loan make sense.