I'm enjoying the last couple pages of discussion on the FED. I appreciate you guys having a civil discussion about it as it gives me a chance to learn. I'm in the process of refinancing my house right now. When I initiated the action, the advertised rate @ my institution was 3.375 (plenty good for me since I'm currently @ 4.625). However, by the time my LO was able to lock, the rate I got was 3.5........& went to 3.75-3.875 shortly thereafter. I asked the LO about it & the short answer about the rising rate had mostly to do about costs of selling my loan. I know this has very little to do with the ongoing discussion here, but it's a small part of the big picture for which I have little understanding.
This is what people think and what the goal is...to remove a risk free rate of return and force people into RISK assets..because there are no alternatives that give ANY kind of return without serious risk.
People who earned their money from working or from investing at younger years do not want to take risk, they want preservation of capital..and SOME sort of rate of return that hopefully will eclipse the erosion of inflation on their asset so they have choices of working or not and living their lives with reasonable comfort. Now the real true inflation which the FED does not follow has destroyed retirees or people close to retirement and their ability to keep up with inflation let alone earn some sort of return.
You do not need a study to see data right in front of your face, the information is there if you open your eyes and read it. True inflation which has not removed aspects of the data that skew it but STILL have relevance is higher for retirees and over 50 citizens due to their need for healthcare but the government removes it due to vol issues..but that same group who either wants to consider being finished working or IS retired now cannot take the assets they have and get a RISK FREE return that can beat inflation and shockingly maybe earn a few bucks in addition. Ive used my in-laws as an example many times...they retired in 1999 and they were government employees, one had a full pension benefit the other a partial because the government changed from pension to 401k while they were working but one qualified due to length of time there and the other had to split it. So they retired and I know because we discuss finances and I usually help with taxes that initially including SS and pension and MRD they had a small surplus from expenses in the early years. As time went forward that surplus turned into a draw and now they are drawing on assets with pretty much the same standard of living the entire time. They did not move, they live in a low taxed area, their costs are set..they are not casino junkies or trip hounds. They had their money in an interest bearing MM and a couple of CD's and were all set. About ten years in the wife complained to me that there is no interest coming from their CDs or MMs because rates had dropped over time (and continue obviously) so she stupidly went into a high yield junk bond fund from Fidelity Investments to chase some yield...I didnt know about this at the time and she didnt mention. Why should someone near 80 years old be forced into a junk bond fund to get 5% return that does not even keep up with inflation? Its absurd. People have been forced into high high risk investments or into schemes to try and beat inflation or save for the future.
The people who are harmed the most from this drop in rate are the 50 age group and up...they are not net borrowers, they are savers looking to safely and responsibly protect their assets and money so they have choices for their future. Someone 50 and up should not be surfing the stock market or investing in junk bond funds or locking up money in a nasty investment like an annuity...removing risk free returns to serve the investment community and governments is not how free markets work. The FED should not take control of market rates to force an inflation target but they have and do.
I'm not sure what study you need to see obvious data right in front of you...CC rates are higher, student loan rates are very high, consumer debt rates are higher. The only change is mortgage rates and that is not proportionate to the drop in the 10/30/FED funds rates...so who is able to benefit from near zero rates? I just showed that for the average joe the benefit is minimal to nothing...the trickle down concept never has worked and does not...trickle down works when corps are not motivated to buy stock or increase dividends vs invest in capital goods and hire workers. Trickle down really only works when demand forces corps to hire...but demand isnt there to force hiring or to force wage increases..and without higher average hourly earnings and the fact that our employment spectrum has shifted to lower paying service jobs there will not be an increase in demand. The benefit is held above by the elite and the worker does not participate and is harmed.
Rates are a joke given where the 10 and 30 are. I have a friend who is a LO and I've known him for fifteen years, Ive done several loans with him and recco'd MANY customers to him, we talk all the time and he tells me the straight on what is going on.
When rates first started dropping I mentioned to him that given the model of how mortgage rates ebb and flow with the 10 and 30 and have for decades I had an idea what X move in rates would mean to a 10 and 15 yr mortgage and I mentioned to him if a 10 got down to a certain point that I would consider dropping down from my 15. So when I did my 15 five years ago bond rates were whatever they were and I caught the trough of the mortgage rate drop..but since that time all rates have gone down like 2 percent from those levels. If you pull up a 10 and 30 chart you can see the drop so i expected that at a certain rate level it would translate to a certain rate mortgage as it has for decades...its usually a simple and predictable formula...well now it has changed. When rates first tanked I asked my LO friend what a 15 was for a friend and at that time he said a 15 would be 2.625 and that was before the second FED rate cut to zero...well since then bond rates fell further and FED funds went to zero, now mortgage rates are higher than my rate and for sure higher than the rate he quoted me. The reality is the mortgage market is frozen, firms are not wanting to float rates down to where they should be because they are worried about default and they are absorbing rate...meaning they are holding back rate and quoting higher than what a natural traditional rate is relative to the bond market. Many banks are severely pulling back or out of mortgage lending because of the risk in the market right now.
I'm over 50 and I'm 80% in the markets. Like you said, I can not be retired and be in CD's because I don't want to draw down my principle in early retirement.
So.....I'm on board with the markets. Like you said yourself, what other choice is there?
I am not a mortgage guy because I am not real big on them. But it is a misconception that the FED controls the mortgage rates. They certainly impact them. I will post some excerpts and a couple of links for you. But there is a lot of information online about this. Usually if you are not reducing 1.5-2% it is not worth it. But there are a lot of factors — such as how long you plan to stay in the house, how long to break even on the savings, and your own personal financial situation — like how soon to retirement or other anticipates bills, etc.
I am curious what took the guy so long to lock you in at the lower rate. I would research and talk to me that know for sure — but maybe waiting a bit might be the right answer. Recession questions, coronavirus effects on the economy and the housing market. You never know — you may get an even better deal. Unless you are too far along the path already. Or you just want the peace of mind.
Good luck either way. And get that mortgage paid off as quickly as possible!!!
Mortgage rates & the fed funds rate
After lowering its target fed funds rate three times in 2019, the Fed planned to keep interest rates steady in 2020.
But the COVID-19 outbreak starting in January turned everything upside-down.
First, the Fed issued anemergency rate cutof 0.5%, which it hadn’t done since the 2008 financial crisis.
Then it lowered the target federal funds rate again — this time, to nearly zero.
This has borrowers wondering why mortgage rates aren’t close to zero. Or at least a lot lower than they are now.
The answer? Because mortgage rates don’t track the fed funds rate. They operate in their own sector — which is influenced by the Fed, but not controlled by it.
Lower rates encourage more money into the economy, inducing businesses to invest and consumers to spend and borrow. That keeps money flowing through the economy. Here’s how to prepare your own finances for zero percent interest rates.
However, while lower interest rates help some groups, they don’t help everyone. Here’s who stands to benefit the most from lower rates, and also who could be hurt by them.
Mortgages
While the federal funds rate doesn’t really impact mortgage rates, which depend largely on the 10-year Treasury yield, they’re often moving the same way for similar reasons.
In 2018, the Fed raised rates on the belief that a stronger economy could handle higher rates, and mortgage rates climbed as well during much of that period. As investors began to anticipate a slower economy, they pushed the yield on the 10-year Treasury lower in 2019 and 2020, and that hit mortgage rates well before the Fed even acted.
Winners: Lower rates are great if you’re looking to get a mortgageor you’re able to refinance an existing mortgage. Those with adjustable-rate mortgages can also benefit from lower rates.
Losers: Losers include those who are unable to take advantage of lower rates, perhaps because they’re underwater on their house or maybe they’ve locked in a fixed-rate mortgage and today’s rates aren’t quite low enough that it makes sense to refinance.
Still, rates are well below where they were six months before the Great Recession, when the average 30-year mortgage cost 6.74 percent. So rates remain low by historical standards, and a weakening economy could lower mortgage rates further.
The rate cut doesn’t mean that if you compare mortgage rates today, you’ll suddenly get a rock-bottom interest rate. But if you’re shopping around in the next few weeks, you’ll start to see notably lower rates.
The same goes for credit cards. If you have a card with a variable interest rate, you may see that go down. If you’re in debt, it’s a great time to try to pay off as much of it as you can. But do check your rates and terms: loans and credit cards with fixed interest rates won’t change for your entire repayment period, so you may want to stay the course on those debts.
One of the best reasons to refinance is to lower the interest rateon your existing loan. Historically, the rule of thumb is that refinancing is a good idea if you can reduce your interest rate by at least 2%. However, many lenders say 1% savings is enough of an incentive to refinance.
For a 30-year fixed-rate mortgage on a $100,000 home, refinancing from 9% to 5.5% can cut the term in half to 15 years with only a slight change in the monthly payment from $804.62 to $817.08. However, if your'e already at 5.5% for 30 years ($568), getting, a 3.5% mortgage for 15 years would raise your payment to $715. So do the math and see what works.
For refinancing to make sense, your break-even point needs to be relatively soon. A shorter period enables you to reap the benefits for more years before you sell or refinance again. This calculation is especially useful if you plan on moving, because you already have an idea of when you might sell your home.
Closing costs for a refinance are often around 3% and 6% of the loan's principal. Keep in mind that costs and fees may vary somewhat from lender to lender and even from loan to loan, so take that into account when doing your calculations.
Yes You can use your closing costs and your monthly savings to determine the break-even pointfor your refinance. If refinancing saves you $117 a month, as it did in the original example, and your closing costs were $4,000, then it would take 35 months to recoup your closing costs. If there's a good chance you might not be staying in the house that long, a refinance probably isn't worth it.
https://pocketsense.com/worth-refinancing-1-percent-8160712.html
“This is what people think and what the goal is...to remove a risk free rate of return and force people into RISK assets..because there are no alternatives that give ANY kind of return without serious risk.”
Correct. By force of action the riskier will pay more than the less riskier. But there is no ‘force’ into riskier. It is always your option. If people want safer investments — they know they are going to have to take on more risk and if they want safety, their return will be less.
“People who earned their money from working or from investing at younger years do not want to take risk, they want preservation of capital..and SOME sort of rate of return that hopefully will eclipse the erosion of inflation on their asset so they have choices of working or not and living their lives with reasonable comfort.“
Correct again. This is why we put people into less riskier funds as they get older. Mix in bonds, go to more stable funds. In a sense, be less aggressive. I am not as much of that school as most folks are. But I take it case by case. Some people are always going to be at the bare minimum. Some people will have plenty of leeway. For example, are you going into retirement with no debt at all. Or do you want to retire as soon as possible — but will still have a mortgage.
“Now the real true inflation which the FED does not follow has destroyed retirees or people close to retirement and their ability to keep up with inflation let alone earn some sort of return.“
This has to be taken in context. The FED uses different metrics. For example:
Headlines detail the latest Consumer Price Index changes, but the central bank monitors something a lot more esoteric-sounding, the Personal Consumption Expenditure deflator, or PCE price index.
A big difference is what goes into the baskets of goods and services each index tries to measure. The CPI focuses on what consumers pay directly. The PCE is broader. For example, the PCE would factor in the cost of medical care paid by employee-sponsored health plans, Medicare and Medicaid, while the CPI would only take into account out-of-pocket spending by consumers themselves.
The PCE also factors in shifts in consumer behavior, for example, when people substitute cheaper items for more expensive ones. So, if the price of steak skyrockets and people start buying more chicken and less steak, the PCE’s basket of goods would shift to reflect that, while the CPI’s basket would remain the same as before.
As for why any of it matters, the Fed has been trying to raise rates from historic lows without derailing an economic expansion. It wants to keep inflation in check without setting the economy back, often a tough line to walk.
“Going forward, data on inflation will be critical for the Fed” as it decides whether and when to raise rates again
“You do not need a study to see data right in front of your face, the information is there if you open your eyes and read it. True inflation which has not removed aspects of the data that skew it but STILL have relevance is higher for retirees and over 50 citizens due to their need for healthcare but the government removes it due to vol issues”
I think the above also addresses the healthcare issue and the metrics they use.
But for sure you need a study and the data to back up anything you suspect is or is not happening in economics! That is exactly what you do — you study the data and verify it.
Unless, I misunderstood your point here?
I am not a big TIPS or annuity guy. But there are places for them for sure. But most folks are fine with good mutual funds suited around their expectations in retirement — including risk.
That is why I always say plan ahead early and be very aggressive. That way you get to retirement sooner with a larger nest egg.
For example:
If one invested just $1,000 in the stock market in January 1994, in a fund that tracked the S&P 500, the net worth would be $9,344, as of Jan. 6, 2018, That is a return of 848%.
It is all about the longterm and planning to retire and getting rid of debt. Take advantage of employee match.
Then there are the old standbys like social security. A lot of retired folks do okay on a fixed income — if they have no debt at all and have worked a long time and withdraw as late as possible, etc.
For sure, you will always have people that struggle. Due to lack of planning, lack of advise, or even circumstances beyond their control.
But you cannot have a whole monetary policy based around protecting low risk investments for old people or people that did not plan to get old or people that are scared.
The rest of that can be addressed by not ‘investing’ in CDs, annuities, etc. that have low rates. A benefit might be: if no one invested in them the rates may go up
And by now you know my policy on debt — don’t have it! Don’t have CC debt, don’t have student loans, don’t have car payments. The FED is not necessarily going to help the individual in these particular circumstances — that is not its plan. It is to help the economy as a whole.
Now if you do not take advantage of good return investments, that may be riskier, when you are young and get rid of your debt and plan to get old and retire — then that is a you problem. The tools are there — use the ones that work and discard the ones that don’t.
Like they say’ “A poor craftsman blames his tools.”
Sorry, always type in a hurry and don’t proofread.
I would research and talk to me that know for sure
That should be:
I would research and talk to some that know for sure
22 days left for the miracle to take place! I feel like some of us are waiting for the second coming! I'm not a religious man, nor a believer in the theory that cutting the supply of something will result in something magical on the demand side.
Raiders,
Here is reality...here is data right in front of your face, a real life example. I do not need cut and paste simplistic stuff I already know. There is no broad based measure that includes healthcare because it exposes real inflation. if you know people who have waded in and through retirement as the example i gave you would know that inflation is not sub 2 percent for the over 50 age group. My example is spot on, it was two people with a fixed income, fixed expenses and their costs went up up up up with ZERO change in their lifestyle except an increased need in healthcare.
Here is the example, my neighbor was having a discussion about annuities. This guy is retired and he and his wife have been set in a fixed annuity for an extended period of time. The wife had hers come up for renewal a year ago or so and said her stated rate went down to 2% for the same which was I think 7% prior....her husband is coming up for renewal on his fixed annuity and the rate the firm proposed was less than 1%. They were both quite concerned that in changing NOTHING in their investment class their annuity which was supposed to be a safe low risk investment went to below the rate of inflation and it will have a real solid impact on their future plans. They are both in the middle 60 age group.
The benefit for low rates hits the elite, the sufferers are those who do not WANT risk, they should NOT be in risk to beat inflation. You also did not comment on my mortgage rate comment...you cant give a mortgage rate of 9% as an example...who has a 9% mortgage? Ive owned a house for 25 years in and out and Ive never had a 9% mortgage. Get real...give real numbers. Mortgage rates should be sub 2% given the 10 year and fed funds rates period. I think you are either ignoring what I say or you are not understanding the simple concept that the FED has screwed the lesser to benefit the banks, the market players and governments. CC rates are worse, student loan rates are lousy, safe MM and CD rates are garbage...the people who benefit from the FED actions are not the common main street folk. Even a SBA loan is over 6%...I know this for a fact. How is that right? A small biz loan with solid ratios and high credit score still runs over 6% when a bank or fund can borrow at near ZERO...
The halving.What is going to happen? Do the whales unload right before? All I know is I have 10% of my portfolio in btc and neither I or my adviser know what is about to happen.A lot of miners will be done, will they hodl or will they sell? It will be .... ???
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