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Mortgage Moment Ep 026- 2019 Interest Rate Forecast Updated | Jabar Post Indonesia
A mortgage loan or, simply, mortgage (/ˈmɔːrɡɪdʒ/) is used either by purchasers of real property to raise funds to buy real estate, or alternatively by existing property owners to raise funds for any purpose, while putting a lien on the property being mortgaged. The loan is “secured” on the borrower’s property through a process known as mortgage origination. This means that a legal mechanism is put into place which allows the lender to take possession and sell the secured property (“foreclosure” or “repossession”) to pay off the loan in the event the borrower defaults on the loan or otherwise fails to abide by its terms. The word mortgage is derived from a Law French term used in Britain in the Middle Ages meaning “death pledge” and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure. A mortgage can also be described as “a borrower giving consideration in the form of a collateral for a benefit (loan)”.
Mortgage borrowers can be individuals mortgaging their home or they can be businesses mortgaging commercial property (for example, their own business premises, residential property let to tenants, or an investment portfolio). The lender will typically be a financial institution, such as a bank, credit union or building society, depending on the country concerned, and the loan arrangements can be made either directly or indirectly through intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably. The lender’s rights over the secured property take priority over the borrower’s other creditors, which means that if the borrower becomes bankrupt or insolvent, the other creditors will only be repaid the debts owed to them from a sale of the secured property if the mortgage lender is repaid in full first.
In many jurisdictions, it is normal for home purchases to be funded by a mortgage loan. Few individuals have enough savings or liquid funds to enable them to purchase property outright. In countries where the demand for home ownership is highest, strong domestic markets for mortgages have developed. Mortgages can either be funded through the banking sector (that is, through short-term deposits) or through the capital markets through a process called “securitization”, which converts pools of mortgages into fungible bonds that can be sold to investors in small denominations.
I am wrong about so, so many things and I’ve done it again! Watch this video and see me update my forecast for 2019… and tell you why I think you might just want to act sooner than later.
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There’s an old saw that goes “If you laid all of the economists in the world end-to-end, they still wouldn’t reach a conclusion.” They’ll say stuff like “On the one hand, things could get better but, on the other hand, things could stay the same or get worse” and – guess what – they’re never wrong! Well, today I am going to revisit my Interest Rate Forecast for 2019 since things have changed a lot since January and lots and lots of clients have been asking me lately where I think rates are headed for the rest of this year. Fair warning: I said it back then and I’ll repeat it now: I’ve been wrong every year for the last 9 years and I am most assuredly on-track to be wrong for 2019. The good news is that it’s good news for all of you since rates are dramatically lower than they were in January. Let’s take a look at why that is and what I think will happen from here.
Before we do that, let’s revisit my forecast: rates were around 4.50% for a 30-year Conventional mortgage back in January and now, rather than trending upwards towards my projected 5.25%, they’ve fallen to around 3.875%. That’s a huge change. How could I have been so spectacularly wrong?
It comes down to 3 core factors: 1) The trade and tariff wars which are affecting global economic output; 2) a looming global recession and fears of a recession here in the US; and 3) Persistently low inflation in our economy. I spoke about the fact that we live in a true global economy and that things that happen overseas – mainly in Asia and Europe – have a profound impact on our stock and bond markets. The US is the largest economy on Planet Earth and, more importantly, it is considered the safest place to put money to work. And even though we are facing some headwinds in our economy, we are, as the saying goes, “the cleanest shirt in the dirty laundry.” That means that foreign investors are pouring money into safe & secure investments such as Mortgage-Backed Securities and that, in turn, means that the increased demand is driving bond prices higher, and – since you all remember from Video #3 that higher bond prices translate into lower interest rates – here we are in July, 2019, with rates hovering around 3.875%. For the average $200k mortgage, that translates into about $73 a month, or $875 a year. Not life-changing but a nice bonus, for sure.
So, what are the experts saying? I read this from an “industry expert” just this morning: “Based on the Fed’s laundry list of concerns, the bond market (which determines rates) will be watching economic data closely, both at home and abroad, as well as trade-related concerns. The stronger the data and trade relations, the more rates could rise, while weaker data and trade wars will lead to new long-term lows.” Remember what I said at the start of my video – if you laid all the economists in the world end-to-end, they still wouldn’t reach a conclusion? There they go again! Here’s what I think will happen: the trade and tariff wars can’t continue. They just can’t. It’s not good for us and it’s not good for them, either, so agreements will be forged that reinvigorate all of our economies. That, in turn, will eliminate fears of a global and domestic recession, and from there, we’ll see fewer buyers of mortgage-backed securities and – voila – rates will begin to creep back up and – drum-roll please – we’ll end 2019 right where we started with rates at 4.50%.
Here’s a final word and reminder about what the Federal Reserve can – and can’t – do. There are a lot of prognosticators who are forecasting that the Fed will lower its rate at the end of the month in an effort to ward off a recession. That rate cut will impact home equity lines, credit cards, car loans, and other short-term lending rates. Here’s the biggie: it has absolutely nothing to do with long-term mortgage rates. If you hear someone say that the Fed is cutting mortgage rates, put on your sneakers and run – don’t walk – in the opposite direction.
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