Mortgages and Inflation.

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Ryan Rudolph
Posts: 2490
Joined: Sun Jan 29, 2006 10:32 am
Location: British Columbia, Canada

Mortgages and Inflation.

Post by Ryan Rudolph »

I've been trying to understand the relationship between inflation, interest rates and choosing the appropriate mortgage based on the economic conditions. Here is where I am presently on the issue.

During recessions, the national banks tend to lower interest rates because inflation is low, and they are trying to encourage borrowing and confidence. Basically, people are in debt, being cautious with their money, afraid of making large purchases and so on. Based on this tendency, wouldn't it make the most sense for a home owner to choose a variable rate mortgage during the start of a recession because there is a certain degree of security that inflation and interest rates will be low? In Canada, rates reached extreme lows during the recession, and tended to hit extreme highs during the bubble of the last boom cycle.

And then when the economy starts to pick up again, where people gain confidence, and the boom cycle starts over again, it seems that it would be the right decision to then lock in ones variable into a fixed mortgage, and then ride out the fixed rate during the boom cycle when inflation is the highest....

Any comments?
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Tomas
Posts: 4328
Joined: Mon Jul 18, 2005 2:15 am
Location: North Dakota

The bankers rule:

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I don't hold out much "hope" that anything will change until after December 21, 2012, when the Federal Reserve System 99-year Charter with the U.S. expires. It may be that everything (the necessary paperwork and fresh ink for the rubber-stamp) has already been prepared and will be handled during a lame-duck session of Congress and signed by the president...

Just a heads up on who runs the show :-(

The bankers rule: Jamie Dimon at the US Senate
The members of the Senate Banking Committee treated JPMorgan CEO Jamie Dimon with awe and reverence.
No one asked Dimon a single probing question or demanded that he account for the devastation the banks have wrought. The event was ritualized, scripted political theater, and bad theater at that.
Full story >> http://www.wsws.org/articles/2012/jun20 ... -j16.shtml
Don't run to your death
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