In my previous post, “Do you really want a lower interest rate?“, I showed the correlation to low rates, job losses, the economy and the markets.  Lower rates are not that good – for everyone.

However, most people want a lower rate but very seldom, if ever, have I heard anyone mention this correlation.  I take that back, my friend Jerry, use to say to clients “I hope so” when he was asked if rates were going higher.

Higher rates are good for the bank, which Jerry was a lender, but Jerry and I knew what higher rates meant as well.

Higher rates are indicative of a better economy.  In the following article from CNN Money about the G20′s economy, the article sites that Australia is raising rates 25 bpt.  Bpt is basis points and 25 bpt equates to 1/4%.

To finish talking about the interest rates and the economic times, Australia is outperforming other countries and may raise rates over the next year as well.

The next year could look good for investors, employers, employees and the economy; therefore, enjoy the higher rates.

Not the Central Bank that we hear about, rather this is the government itself as a direct lender.

With the bailouts of banks, the Federal government has taken a stake in the private sector.

On a quieter note, meaning we don’t hear about government agencies like we do the bashing of bank CEO’s or the profit making companies in the media, HFA’s (Housing Finance Agency) either guarantee or originate loans to lower and middle income home buyers. According to an article on the WSJ, $35 billion is on its way to help in the housing market.

In addition, Obama has made plans to open a new office in the Commerce Department - Office of Innovation and Entrepreneurship.  The goal is to provide training, easier access to capital, research and data, etc.

However, the SBA already provides loan guarantees to banks for small business.  True the access may not be as easy, since the ultimate decision to fund a loan is up to the bank – not the SBA.  Also, the SBA not a direct lender.

In addition, Small Business Development Centers that are partnered with the SBA provide training, research through data, and other services for new and existing businesses.

What is interesting about the Entrepreneurship Office is the phrase “access to capital”.   Does this mean more guarantees or a direct lender situation allowing the agency to make the decision and fund the loan thus bypassing the bank?

Ownership in the private sector banks, agencies doing direct lending below market rates, and potentially commercial lending, the government seems to be a direct competitor instead of a regulator.

I’ve been talking about how easy interest rates are to understand for the last several years. I put the complex subject together in an easy to understand section in my upcoming book, “Lenders, Loans & Lucky Losers”.

Today, I was reading Bankrate.com’s article on interest rates since the financial meltdown. The article is really a snapshot photo of economic times.

Here is the correlation to interest rates and the economy.

Mortgage interest rates are lower and so are your investment rates.  Unemployment is higher and interest rates are lower.  Low rates, bad economy.  With an uncertain economy, personal savings is going up, which means a greater supply of money in the hands of banks, thus lower interest rates too.  Supply and demand.

So the next time you say you want a low rate, be careful what you wish for.

Be on the lookout for my book, I’ll shed even more light on interest rates, mortgages, banking, etc. in simple terms just like the examples I just mentioned.

A loan know commonly as the “liar’s loan” is basically a loan with no or little verification, or a reduction of documentation. A driver’s license and credit check, if memory serves, is pretty much all that was needed to do an express type of mortgage. In addition, a NINA mortage is a No Income/No Asset mortgage and a SISA is a stated income/stated asset loan. These loans still may have some verification, but the process is short and sweet.

A key point is made in the following video is making house ownership available to all. This concept actually goes back several decades.

Failure by design? You can see how this point is brought out, even though it is not stated in this manner. Low rates, easy money, and government to the rescue.

On the other hand, home ownership is not always the American Dream and the lending crisis has crushed many dreams, not just for the owners of the individual houses, but the retirements of others as well.

Take a look and see what you think about the following video.

I was reading an article by Bankrate.com on buying down points as a selling tool for getting the house sold. The seller is considering “buying” down the mortgage, i.e. putting money down at the origination to reduce the interest rate, thus helping the buyer.  The seller has given an incentive, or motivation, to entice the buyer to act.

We all know what incentives are, just take a look at cash for clunkers – up to $4,500 off on a new vehicle.

The incentive to buy down the rate, according the article, is by spending $20,000 to $25,000 upfront, the borrower saves approximately $40,000 over the life of the loan. In addition, the seller also benefits because the price of the home has a higher selling price.

What I thought was interesting about the article is this. Price.

It does not matter the product…a house, car, mortgage, cabinets, wedding dress…the price has to reflect the costs in any transaction. A higher price can include fees and costs, thus giving you the idea you are getting something for free. A lower price gives you the illusion you are getting a great deal, but have to pay for other services or products as add-ons. (Did I get a great deal on my airline tickets? I had to pay for my luggage to ride on American Airlines.)

Interest rates are a price.  The price of a loan. For example, you can get a great rate on a 30-yr. fixed, but may pay a little more for options such as an interest only feature or eliminating escrows.  (More on this in my upcoming book.)

Referring back to the owner. The seller will spend money to get a higher selling price. In other words, the owner has incurred costs and will have to ask a higher price.  Does the owner really make more money? Maybe, maybe not. Does the buyer save money? Maybe, maybe not. However, this may be incentive enough to get the buyer to act and that is the idea.