Interest rates. WTF? Why are we getting almost free money?

[BigRedChief]

I put a contract on a house yesterday. Locked in a rate and loan. Got 3.625 and they gave me $8,800 towards closing costs. Which is obviously more than it costs.

We were able to lower the purchase price because we didn't have any closing costs.

Last time we bought a house we got 5.25% which at the time our loan guy said was the lowest rate since WWII.

So my question for the board is why is the public getting home loans that are maybe 1%-2% above inflation? Where's the money being made or lost?

[petegz28]

It's called the federal reserve keeping rates at artificially low levels and devaluing our $ by printing a shitload of what is becoming worthless paper

[blaise]

#Humblebrag

[petegz28]

Btw, the money is being sorta made by the fed gov getting debt rates at extremely low levels and the money being lost is of course at the tax payers expense on various forms of hidden taxes

[prhom]

30-yr tbill rates are 3.06 pct right now, so there is still room for profit there but not much. It's going to be a skinny margin though because there is an oversupply of capital and less demand for mortgages. The big risk is that the real rate of return could go negative pretty quickly if inflation were to take off.

[BigRedChief]

Originally Posted by petegz28

Btw, the money is being sorta made by the fed gov getting debt rates at extremely low levels and the money being lost is of course at the tax payers expense on various forms of hidden taxes

Where is this hidden cost?

[BigRedChief]

Originally Posted by prhom

30-yr tbill rates are 3.06 pct right now, so there is still room for profit there but not much. It's going to be a skinny margin though because there is an oversupply of capital and less demand for mortgages. The big risk is that the real rate of return could go negative pretty quickly if inflation were to take off.

So banks have too much money and not enough people wanting to borrow it?

[petegz28]

Originally Posted by BigRedChief

Where is this hidden cost?

Higher food and energy costs, eroded value of savings

[BigRedChief]

Originally Posted by petegz28

Higher food and energy costs, eroded value of savings

What is the connection? How does low interest rates cause those losses?

[Mr. Flopnuts]

Originally Posted by BigRedChief

So banks have too much money and not enough people wanting to borrow it?

More like not enough people qualifying to borrow it.

[BigRedChief]

Originally Posted by Mr. Flopnuts

More like not enough people qualifying to borrow it.

I have good credit but not perfect at all. My debt to income ratio is average. Whats considered bad credit these days?

And now after I locked in I hear there are 3.3% loans out there.

[Comrade Crapski]

Free ie worthless.

[theelusiveeightrop]

Over printed money is nearly free and almost worthless. Who pays? Future generations.

[Comrade Crapski]

Bernanke has completed destroyed our economy. He's put us in checkmate. We have no moves left. Game over.

[petegz28]

Originally Posted by BigRedChief

What is the connection? How does low interest rates cause those losses?

lower interest rates mean lower value of the US $. Commodities sucha s oil and food are denominated in US $'s. Therefore, basic econ 101 tells you that if the currency in which a commodity is denominated decreases in value, the prices od said commodities increase in value.

I have been saying this on this board for the last several years now.

As far as savings goes, people on fixed incomes or who otherwise depend on traditional forms of savings are making absolutely dick in interest and by the time you factor in taxes and inflation they are actually losing money net-net.