I recently bought a house. I bought it chiefly to please my wife, in spite of the continued poor state of the housing market. But that’s not what this note is about. The topic today is the gift I was given by the Fed.
After many hours of tortured conversation, I finally realized that the logic of the falling housing market was not going to trump my wife’s desire to buy our next home. So we moved ahead on our purchase. I worked very hard many years ago so that my wife and I could own our home outright. In later years, financing became a luxury, not a necessity. I am grateful for this, but I was even more grateful when I recently saw that my mortgage rate could be less than 4%.
Now, I watch interest rates, equity markets, metals –all things financial really – most of the day. I was aware mortgage rates were falling to historic lows of around 4%. However, to actually apply for and receive a mortgage commitment of 30 years at this rate is just odd. Why would a financial institution loan anyone money at terms of less than 4% for 30 years? It just makes no sense… until you check with Ben Bernrnanke, the Federal Reserve Chairman…
As we’ve pointed out many times, the Fed is using interest rates like a weapon, trying to force borrowers to take out more debt and spend it in an effort to stimulate economic growth. To this end, the Fed is forcing interest rates as low as possible. While we think this is a terribly flawed strategy, it does create opportunities. For people who are financially responsible and able to use credit wisely – as a tool in one’s financial toolkit, not as a way to outspend one’s means – this situation is attractive.
My newly minted mortgage is a great example of how to beat the Fed. I did not necessarily need the money, but at sub-4% I was not going to turnrn it away. This is a once-in-a-lifetime opportunity. And it doesn’t stop at homes. Anyone considering a loan, even refinancing, should march – electronically, that is – to their favorite lender and see about a lower rate. This could be for your house, your car (yes, you can refinance cars), HELOC’s, credit cards – you name it. By doing this a consumer can save himself hundreds if not thousands of dollars a year!
If the Fed is going to be in the game of forcing interest rates lower, the least we can do is help by accepting the gift. This will probably by the one time I say this, “Thank you, Ben Bernrnanke.”
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