Gas and the Price of Bonds
The local gas station has pulled away from the $3 mark. This is really good news, because all kinds of "ripple effects" were already moving through our economy; Higher prices, lower profit margins and even stock losing ground. Well, if gas stops the inexplicable trek higher, and inflation stops its race to higher prices under the influence of gas, the only thing we'll have to worry about is bonds.
Does anyone besides me remember that old expression: "What does that have to do with the price of tea in China?" Well, whether you remember the expression or not, bonds have a lot to do with your mortgage and your interest rate on that mortgage. Most financial institutions get their money to lend to you from the bond market. When they start to pay more (even if the Fed isn't raising rates), you'll start to pay more.
Unfortunately, while the "price" of bonds themselves is going down, the "yield" on bonds is going up. The yeild refers to the rate of interest that you get on a bond. When that interest rate goes up, we all get to pay more.
And just when I thought I could get away from the bad news summer of 2005.
Well, as you must know by now, even if the media is assaulting you with bad news, it's never all bad. If you have a half decent credit rating, you can usually get a better rate of interest than the posted rate. For that matter, you should ALWAYS try to negotiate a better rate. Why? Well, whether your lender tells you this or not, they have different rates. And you should always try to get their lowest.
Here's what we have to remember, even when that obnoxious bank employee is trying to make you feel as if you should thank them for lending you money: you are actually doing THEM a favor. How do banks or other lenders actually make money? (Well, other than service fees, but don't get me started...) They make money because of YOU. You are doing the same thing with the bank as you do with any other place where you buy a product; you are choosing to spend your money there. In the case of a mortgage, they use all kinds of fancy terms, but you are fundamentally "buying" the right to borrow their money. And if you don't, they will have to find someone else to lend to, or that revenue that they need to continue business will not be there.
Now, if your credit rating is not that good, you may not have a leg to stand on. However, if you do have a good credit rating, ask for a better rate! Always ask for a better rate. If you are a potentially good client to them, on whom they are going to make money, they will make a deal with you.
I think only once in my life have I paid the "posted" rate. I was running with 6 month mortgage terms, to get the lowest rate I could. Usually that worked out fine for me, even if I was paying the posted rate. The fact is that if you take a really short term mortgage, like 6 months, they won't negotiate much with you. But if you are looking at a term of 2 or more years -- ask for your "discount"!
As the fall approaches, there should be less people negotiating mortgages. After all, most people buy in the summer, right? So take advantage of that, if you are going to talk to a lender. You'll have their undivided attention.