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Introduction
Most people tend to finance their property ownership by securing credit from mortgage banks which are payable with interest. The Federal Open Market Committee (FOMC) convened an emergency session in March 2020 to discuss the economic effects of the COVID-19 epidemic. It reduced the FED funds rate to its new target level of between 0 percent and 0.25 percent (Akram et al. 7). The rate of the FED funds is the metric measure for adjustable-rate and short-term lending. It is even smaller than the target level of between 1.5 and 2%.
Consequently, the value of loans has soared, with mortgages dropping to historic low levels (Akram et al. 9). It also means that inflation is lower than the FEDs 2% mark. It means that investors are gaining so little on their savings than they did before the downturn; hence, interest rates are still dropping (Agarwal et al. 5). As far as best interest loans are concerned, personal loans and credit cards offer high-interest rates yet do not need security. Home equity loans have low-interest rates; however, the debtors property acts as an advantage, whereas cash advances usually have excessively high-interest rates and service charges.
History of Home Loan Rates
Since the year 1971, mortgage interest for thirty-year-fixed-loans has reached record highs and lows owing to several influences. In that particular period when Freddie Mac began assessing creditors, interest rates ranged from 7.29 percent to 7.73 percent. The yearly average inflation rate started to increase in 1974 and proceeded to rise to a peak of 9.5% in 1981 (Akram et al. 14). Consequently, creditors raised rates to maintain pace with uncontrolled inflation, contributing to instability for borrowers. The trend continued to fall till the rate decreased to 3.31% in November 2012 the weakest in the context of borrowing costs (Akram et al. 15). Therefore, the cost of buying a home will depend on the interest rates at that particular period
Is Buying a Home a Good Investment?
In reality, owning a home is among the best long-term acquisitions that one can achieve. Despite significant declines such as the 2008 Housing Crisis, the value of residential property continues to increase. Real estate is mainly priced because of the land upon which the property is situated, while the physical building depreciates as time passes (Anastasia and Narsa 272). The area with the facilities around it such as schools, amenities, roads, and the town in which the home is located all contribute to the valuation of the house (Hei and Dastane 25). Consider a residence that is run-down and poorly maintained to the extent that it is unusable. The land beneath the home could still be worth a substantial sum of money more than the residence itself. A seller can choose to sell it as-is (with both the building intact) or use a little more money to demolish the house and sell the property separately for a higher price.
Concept of Principal Mortgage Interest and Other Home-Buying Related Issues
The monthly mortgage repayment is split into two parts: principal and interest. The sum borrowed from a creditor is referred to as the principal. The interest is money being paid by the borrower to the lender in exchange for a mortgage. The majority of creditors measure interest as an annual percentage rate (APR) that is paid annually. Though unusual, some mortgages accumulate interest by dividing the mortgage interest rate by 365 (Agarwal et al. 6). Thus, the common interest will be the same sum each day of the same month, and the deductible would be added to the overall interest for that month at the end of the following month. Therefore, before considering purchasing a home, one should first prepare their finances, including arranging savings and credit to obtain a suitable mortgage promptly. Finding the right house, securing funding, making a bid, having a background check, and closing the deal are all part of the process. If a landlord has moved in, they must preserve the property while continuing to save.
Works Cited
Agarwal, Sumit, et al. How does Working in a Finance Profession Affect Mortgage Delinquency? Journal of Banking & Finance, vol. 78, 2017, pp. 1-13.
Akram, Qaisar Farooq, et al. Identification of Interbank Loans and Interest Rates from Interbank Payments A Reliability Assessment. Norges Bank, 2018, pp. 1-21.
Anastasia, Njo, and Made Narsa. Dual Process Difference in Families Regarding Home Buying Decision. Journal of Economics and Behavioral Studies, vol. 10, no. 6, 2018, p. 272. AMH International Conferences and Seminars Organizing LLC.
Hei, Chong Pei, and Omkar Dastane. Buying a Dream Home Considerations of Residential Property Consumers in Malaysia. Singaporean Journal of Business Economics and Management Studies, vol. 5, no. 9, 2017, pp. 19-35. Al Manhal FZ, LLC.
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