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How Economic Stimulus Impacts Home Financing

2008
02.13
It's important to recognize that one major reason why home financing has been so (relatively) cheap lately is because economists forecasted a major recession for 2008

President Bush is expected to sign the economic stimulus package today.

The package includes tax rebates and incentives for business and its purpose is to jumpstart a stalling U.S. economy.

If the package is deemed “effective” by Wall Street investors, we should expect the stock market to rally on the prospects of business growth.

The flipside of stock market gains is that they will likely come at the expense of the bond market.

If you’re currently shopping for a home or for a home loan, this is bad news because when mortgage bond markets fall, mortgage rates to rise.

A 0.125% increase in mortgage rates, as an example, adds $125 to the annual interest payments on a $100,000 home loan; a $400,000 home loan increases by $500.

One major reason why home financing has been so (relatively) cheap lately is because economists forecasted a major recession for 2008.

With each attempt to spur the economy, those odds are reduced and mortgage rates trend up.

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