When you are trying to time the best time to borrow for your house, picking a time when interest rates are down will save you a lot of money. If you think interest rates are going up, you will want to lock in a lower rate now, but if you think rates may still fall considerably, you will want to wait before you commit to a home loan.
A comprehension of how interest rates are determined, and what influences them, will help you make an educated guess about the direction they will take. If you regard interest rates as the price of money, and realize that factors like supply and demand influence all prices, you can see how the ?price? of money can even affect your mortgage.
Inflation is one of the very important factors in interest rates. The inflation rate has two primary indicators. These include the producer price index and the consumer price index.
PPI is the measure of change in prices in a given length of for goods at the production level. Increases in the Producer Price Index means higher prices for finished goods, and that translates to inflation.
CPI is the change in prices at the consumer level and is measured by the overall costs in a mix of items defined by the government statisticians. CPI is more well known to most people because it shows whether the prices we are paying are rising or going down, and by how much. The so called ?basket of goods? used is steady so that economists can see how prices change, but because food and energy are included, they are often eliminated to lower volatility. The volatile categories of food and energy can affect the inflation rate, while core inflation gives a better measure if overall prices are on the rise, causing inflation.
GDP is the next widely used indicator of how inflation and in turn interest rates will act. The Federal Reserve Bank tries to keep the economy growing at a sustainable rate; too slow and production will lag, causing a recession; too fast and the economy may overheat. Central banks act in the money markets to control the money supply to slow the economy down or speed the economy up.
The unemployment rate is another major part of the economy that affects interest rates. If unemployment is down, the resulting increased wages will be an inflationary influence. High unemployment usually leads to lower interest rates eventually since employers can keep wages lower since there are so many candidates for each position. Lower wages equal lower prices which equals lower inflation.
If you are considering a loan, it is to your advantage to watch these indicators to target the best timing to enter the mortgage market. The rule of thumb is that a slow economy with high unemployment will mean that rates will be falling. Increasing GDP and low unemployment means the economy is heating up and you can expect higher interest rates in the future.
A comprehension of how interest rates are determined, and what influences them, will help you make an educated guess about the direction they will take. If you regard interest rates as the price of money, and realize that factors like supply and demand influence all prices, you can see how the ?price? of money can even affect your mortgage.
Inflation is one of the very important factors in interest rates. The inflation rate has two primary indicators. These include the producer price index and the consumer price index.
PPI is the measure of change in prices in a given length of for goods at the production level. Increases in the Producer Price Index means higher prices for finished goods, and that translates to inflation.
CPI is the change in prices at the consumer level and is measured by the overall costs in a mix of items defined by the government statisticians. CPI is more well known to most people because it shows whether the prices we are paying are rising or going down, and by how much. The so called ?basket of goods? used is steady so that economists can see how prices change, but because food and energy are included, they are often eliminated to lower volatility. The volatile categories of food and energy can affect the inflation rate, while core inflation gives a better measure if overall prices are on the rise, causing inflation.
GDP is the next widely used indicator of how inflation and in turn interest rates will act. The Federal Reserve Bank tries to keep the economy growing at a sustainable rate; too slow and production will lag, causing a recession; too fast and the economy may overheat. Central banks act in the money markets to control the money supply to slow the economy down or speed the economy up.
The unemployment rate is another major part of the economy that affects interest rates. If unemployment is down, the resulting increased wages will be an inflationary influence. High unemployment usually leads to lower interest rates eventually since employers can keep wages lower since there are so many candidates for each position. Lower wages equal lower prices which equals lower inflation.
If you are considering a loan, it is to your advantage to watch these indicators to target the best timing to enter the mortgage market. The rule of thumb is that a slow economy with high unemployment will mean that rates will be falling. Increasing GDP and low unemployment means the economy is heating up and you can expect higher interest rates in the future.
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