Inflation Versus Interest Rates

[dypinc]

You are correct. One thing though, expense is relative. I guarantee you that the ROI on a new refinery is something to brag about. Problem is, when tax rates are stupid low, like now, there is absolutely no incentive to invest money in anything. Shareholders want the money while it's cheap.
It has nothing to do with regulations, politics etc. There just isn't a significant monetary incentive for oil companies to invest right now. Just ignore politics and think about it. People are getting snowed with the rhetoric.

Whether you want to call it regulations, politics or not the incentive is being taken away by totalitarian socialist dictatorships, and history proves that. Hard to find people that want to invest in work so why would you think would you think business would have any incentive either. Allow some freedom and see what happens.

 

[ProSignTN]

Okay dypinc, I'm intrigued, tell me more about'Totalitarian Socialist Dictatorships' and how history 'Proves it'.

 

[FireSprint.com]

Here's a pretty good video with an answer to the OP.

Raising rates makes loans more expensive, which means we buy less. It also means saving cash in the bank is more lucrative due to higher savings rates. People may choose to save money rather than buy something.

Spending less money on stuff, helps lower demand for those products, which lowers prices which helps curb inflation.

In theory anyway...

 

[Johnny Best]

Fred, just wait until it gets cold up there and you have to pay for heat. Should have stayed in God's Waiting Room.

 

[Boudica]

Here's a pretty good video with an answer to the OP.

Raising rates makes loans more expensive, which means we buy less. It also means saving cash in the bank is more lucrative due to higher savings rates. People may choose to save money rather than buy something.

Spending less money on stuff, helps lower demand for those products, which lowers prices which helps curb inflation.

In theory anyway...

Except no one has raised the interest on savings accounts.

 

[Notarealsignguy]

Except no one has raised the interest on savings accounts.

You can get high yield savings around 2.5% now and CD rates are 4-4.25% IIRC, even on short terms.

 

[CanuckSigns]

I'm on a variable rate mortgage and it seems like once a month I get a letter from the bank about our rate increasing and my monthly payments going up.

It's still manageable for us as we don't owe much on the house anymore, but I can't imagine trying to get into the housing market these days. Around here mortgage rates have gone from 1.5% to 6% in the last year and a half, lots of people bought way more house than they can truly afford and they are about to find that out very quickly.

 

[Texas_Signmaker]

I'm on a variable rate mortgage and it seems like once a month I get a letter from the bank about our rate increasing and my monthly payments going up.

It's still manageable for us as we don't owe much on the house anymore, but I can't imagine trying to get into the housing market these days. Around here mortgage rates have gone from 1.5% to 6% in the last year and a half, lots of people bought way more house than they can truly afford and they are about to find that out very quickly.

Is that popular in Canada? Most people here have 30 year fixed.

 

[ikarasu]

I don't think 30 year is possible here. 5 year is standard and you keep renewing it for 25 or 30 years

 

[Notarealsignguy]

Won't be long before mortgages are 40-50 years and your kids get to inherit your debt instead of your assets.

 

[ikarasu]

So the terms are usually 25 years. And so long as you don't keep missing payments the bank will extend it.

But every 5 years the rate changes - for the past 15 years variable was the way to go... I always went fixed. This time I went variable. I'm going to lose money, but at least it's only for 5 years.. and tbh, I'd rather it this way.

I can't imagine all those people who go to renew their fixed in a year or two and end up paying twice the amount and get shocked / lose their homes..

Havi g a $100 increase every few months is less of a shock than a $2000 a month increase in 2 years. They say the rates shouldmbe back to normal in a year or two, but I felt bs on that.

 

[Boudica]

What's this "renewing" business? I've heard of refinancing, but it's not mandatory. I've never needed to "renew" my mortgage.

 

[CanuckSigns]

In America you get a mortgage for 25 or 30 years, in theory you can go the entire time paying the same rate and never have to worry about what the current rate is.

In Canada, we have 25 or 30 year mortgages, but it is broken into terms, most people do a 5 year term, so every 5 years your mortgage comes up for renewal,and you can shop around for a different bank or lender.

Also in Canada.our mortgage interest is not tax deductible like it is in the states, there are some creative ways around this however.

 

[Boudica]

So, if you have to "renew" every 5 years, what are you signing up for if you have a 20 year mortgage? Just that you owe money at "some" interest rate for 20 years?

 

[Texas_Signmaker]

Well that doesn't sound good. We have 30 year fixed which is great when you lock in a low interest rate. If you get a 30 year fixed at a time when interest rates are high, you can refinance when they are lower and get whatever the current rate is... Either way I like the idea of locking in a set amount for the life of the loan. Mine is 3.4% and I'm in no hurry to pay it off.

 

[ikarasu]

30 years is how long the term is.

The first 10 or so years is pretty much paying off the interest.



You sign up for a 30 year with a bank - 5 years is the contract at whatever percent you agree to. Then after 5 years, you can stay with the same bank at the new interest rates... Or shop around to other banks hoping for a lower rate, and your mortgage gets moved over to that bank. Then In another 5 years... You can do the same. It's pretty much a no penalty way to break your mortgage every 5 years to either , pay off fully, or find a cheaper lender... It keeps a bit of competition.

Or for those of you like me who signed a variable and got screwed, you can switch to a fixed. Of course in 3 years when I do that, the rates will start to come down and I'll be stuck for 5 years at a higher rate..

It makes variable mortgages more worth it in Canada. But it also makes inflation suck. Every year there will be hundreds of thousands.of people "renewing" their mortgage at the higher rate. Overnight they can jump from 2%, to whatever it's at now...

I only have a 220k mortgage. But most families who own a house, or anyone who purchased recently are in the 5-700k mortgags. My payments have already gone up $750 extra.... Those in the higher mortgages are really screwed. I forsee a ton of foreclosures happening in the near future...

Canada's housing market is screwed and has been for years. In my area, you can buy a townhouse anymore under a million dollars - cheapest condo is like 700k. So banks will give out huge mortgages to people who can't afford them...

We've been in a housing bubble that should have popped 10 years ago, and now with inflation and stagnent wages... I don't see how many people will be able to keep their homes.

 

[ikarasu]

I went to usa this weekend - still here as I'm typing!

It seems like inflation has hit you guys really really hard. 12 packs of coke are on sale for $8.... 12 reg price. I came out of Fred Meyers with 2 bags of groceries and a floor mat and it came to $275! I used to be able to fill the back of my SUV up with 10 bags for under $200.

Just got 2x 2 item meals at panda Express with 2 drinks and it was $28....

Groceries have been raising a little bit in Canada - used to buy 12 packs of coke for $3 and now they go on sale for $4-$4.50... but nothing like I'm seeing in wa.

I know it's only a matter of time before Canada gets hit this hard as well... Never been through a "recession" / inflation situation like this before, at least not that I remember... I think a lot of Canada is going to be in for a shock

 

[Boudica]

nothing like I'm seeing in wa.

Yah, it's really getting bad. It's been a slow climb, but everytime I go to the grocery store I'm becoming more and more aware of just how much more everything costs. I spent $40 yesterday, and I was just getting a few things for dinner. Grilled cheese and tomato soup! Granted, I bought Texas toast, 3 kinds of cheese and lunch meat. But everything was on deal.

 

[FireSprint.com]

I do feel like things are calming down a bit around here in the Midwest. Gas has come back down mostly and I paid the same for groceries this month as I did last month for the most part. Part of that is alot of stuff is now in season but part of it is stuff calming down.

In terms of the 30 year fixed mortgage, that’s a service provided by our government friends at Fanny Mae or Freddy mac. Private lenders don’t like to have the risk of a guarantee interest rate for that long. Only federal subsidies can do that it seems.

The 5 year refi is common practice on commercial loans, unless the sba (another federal agency) gets involved.

 

[Boudica]

Okay dypinc, I'm intrigued, tell me more about'Totalitarian Socialist Dictatorships' and how history 'Proves it'.

I think upside down flag guy is talking about other governments in history. And his influences are terrifying him that it will happen to his little bubble. Just a side effect of believing radical propaganda.