Posts Tagged ‘interest rates’
Exiting a long period of zero interest rates is tricky and a bit unsettling, Some of us feel like the informed citizens of Pompeii around 79 AD: we are grateful for the lovely sea views but worry about the volcano in the background.
Ewen Watt, Chief Global Strategist at Blackrock
And explained as well. The NY Times (registration required) does a bang up job on this 3D visualiztion. Just great.
Well it may have been too good to last. For the past two years or so, the costs of a reverse mortgage were at historical lows, both their interest rates and associated fees. The use of a reverse mortgage was increasingly recommend by planners, employed as a standby line of credit for retirees living off savings and enabling them to smooth out the cash flows that were being drawn down from more volatile investment assets.
A colleague in the business, Tom MacDonald, emails me today that the costs of these loans are going up and their availability more restricted as of September 30. Key points:
- All fixed rate options eliminated. The only choice will be an adjustable rate.
- The amount of money the borrower qualifies for will be reduced by about 15%. On top of this, interest rates are rising which also reduces the amount of money a borrower qualifies for.
- There is a limit on how much can be taken out in the first year.
- The Mortgage Insurance Premium charged by HUD is changing and could be higher.
- Effective in January, 2014, there will be financial assessments for all borrowers to estimate if they will be willing and able to keep up on property taxes, homeowner’s insurance and standard maintenance. Anyone not passing the financial assessment will be required to have impounds for their life expectancy.
All in all, this sounds like reverse mortgages, for a time a very appealing option in the right situation, are going to become a lot less attractive.
Conforming 30-year mortgage rates spiked higher from the mid 3% to the mid 4% range during the bond market sell-off in the second quarter. BCA Research, who provided this chart, write that the spike is probably overdone and to expect rates to slowly subside again over the next month or two.
However, unless deflation fears resurface, I believe the bond market may have finally put in its low and that mortgage rates are unlikely to decline to those historic levels again. For those who may have been procrastinating about a refinance and as a result missed their opportunity, I would not hesitate should rates dip below 4% again.
One of the first casualties of even the barest hint of the Fed changing course is likely to be gold. We got that hint this past week and here is where Forbes magazine and I can agree. Investing in gold has carried no “opportunity cost” so long as a dollar in cash earned close to zero. Once a dollar once again pays even a small but likely rising return, I see the gold market dynamic reversing course.