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Why Experts Believe The Fed Would Be Shut Down if Audited, And Why You Should Act Now To Get A Mortgage

Updated on June 11, 2009

If you’ve been on the fence wondering whether  or not now is the right time to get a new home loan, regardless of whether that mortgage is to purchase a home or to refinance your existing mortgage, this article will explain why acting ‘today’ is probably better than ‘tomorrow’. 

If you’ve been watching mortgage interest rates at all lately, you know that they have been going up.  And they have been going up in a big way.  The question is, will they come back down to the levels they were at back in April and May.  Most experts agree that the upward trend definitely looks like it’s going to continue for the foreseeable future.

Among the issues is the actual financial condition of the Fed itself.  According to what one expert interviewed by CNBC had to say, the Fed has $45 billion in capital compared to $2.1 trillion in assets.  If it were to be put itself through the kind of audit that it imposes on other financial institutions, it would shut itself down.  Jim Grant, who granted the interview said, “The Fed is undercapitalized the way that Citicorp is undercapitalized.”

Grant went on to also criticize the current position of the Fed of holding the Fed funds rate near zero.  He feels it is not only wrong for our economy at this time, but that no economy should have interest rates near zero.  He compared interest rates to traffic signals, and that at (or near) zero is the equivalent of having all those traffic signals on green.   You can imagine for yourself the kind of disaster that could emerge from uncontrolled flow of traffic in the streets.

It seems that Mr. Grant isn’t the only person who believes that rates are undoubtedly on the rise.  Of course we have seen it in the mortgage interest rates as described above, but that is a current rate.  Looking for leading indicators such as Fed funds futures in order to get a glimpse of what the experts expect the near term future to hold, we see that there is already a half-point rise expected from the current rate of .25%.  It seems that inflation creeping in and rising rates are inevitable.

So coming back to the question of when is the best time to get your mortgage… If you are in a position now to get a mortgage, don’t look back longingly at the low rates of a few weeks ago.  While there is no such thing as a crystal ball in which to see the future of markets and interest rates, everything is pointing to rates going up, not down, pretty much as far as the eye (or crystal ball) can see. 

So yes, now is the time to act on securing your new mortgage.  If it’s a mortgage refinance, you still want to run the numbers to make sure it makes financial sense for you to do it.  If it is for a purchase mortgage, acting sooner rather than later will not only save you from higher interest rates, but it looks like home prices may begin to rise as well. 

Keep it in perspective of the big picture; rates are still low on a historical level and home prices are still reflecting one of the highest affordability indexes we’ve seen in a very long time.


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