The Stack Overflow podcast is back! Listen to an interview with our new CEO.

# Tag Info

0

The risk free simply means that an entity is always paying you back no matter what (safest investment an investor can make)- so think government bond when you hear risk free. The federal gov- in the u.s.of-.a has AAA bond rating (meaning that they are good for paying your investment back with interest), and therefore the rate paid on the bonds is 4.25%; this ...

2

As @Chris Degnen says - it is kind of the opposite of an iterest rate. Lets see if I can give you some more intuition on this. Risk-free rate and risk premium Imagine you are making an investmenet, lending money or whatever. You are doing it so that you get back more money than you lent - otherwise why would you. The interest rate you want to charge has ...

0

The rate is the rate such that the present value of outflows (payments) is equal to the present value of the amount(s) borrowed. The present value of a cashflow is: c / (1+r/c)^(t*c) Where c is the amount of the cashflow, r is the rate, c is the number of compounding periods per year, and t is the number of years. Once your calculation is set up to ...

3

Discounting is simply the opposite of applying interest. Whereas applying interest finds the future value (FV) of an amount, discounting finds the net present value (NPV) of a future amount. FV = \$100 (1 + 10%) = \$110 NPV = \$110/(1 + 10%) = \$100 Raising interest rates suppresses economic activity, but according to the Economic Policy Institute ... The ...

0

Your question of, Why would I, as a consumer, choose X over Y? is really only half the puzzle here. As basically stated in quid's answer, There may not be a good reason for you to choose X over Y. But, that may be the desired conclusion for you to reach based on deliberate, artificial pricing conditions the bank has created. In other words, you also need ...

11

Because rates might be lower before the 9-month period is over. If you don't think that's likely, that's fine.

0

I'm not sure what "tilt effect" you're looking for (it's possible that there are multiple things in the world with that name). If we're going by this article or this paper, the tilt effect is a recognition that, over time, mortgage payments get effectively cheaper for most borrowers. Underwriting guidelines don't (generally) change with inflation so the ...

0

The above is an example of how the mortgage tilt effect actually hurts the borrower. When there is an inflation, each payment is worth less in real terms, because inflation erodes its purchasing power. In my example, the loan is 30 years with monthly payment about \$2500. The blue line shows the trajectory of principal payment in the absence of inflation ...

1

The value to be obtained is always relative to some other option - so what else would you do with the money, if not putting it down on a house? Here's one way you could try to work it: put the money in some as-safe-as-one-can-hope-for guaranteed investment, such as treasury bills. Lets say that at the same time as you can get a mortgage for 4%, you can get ...

1

what is gained by having a mortgage and paying off with "future dollars that are worth less with inflation" You'd be paying a fixed monthly amount with dollars that are inflated in value. It's the perfect plan. Imagine someone who bought a house in 1970 before "stagflation" hit and prices and wages jumped over the next 10 years. It's now 1980; his salary ...

1

RonJohn's comment on your question is telling: Besides, the Feds just cut the Federal Funds Rate by 0.25%. Mortgage rates will soon follow suit On the very day that you're saying "I do not believe mortgage rates will fall" they have essentially fallen. This should be informative in terms of predictions about rate changes in the future. In a sense, this ...

Top 50 recent answers are included