Why Low Mortgage Rates are a Good Thing

28 January 2015

Bank Economists keep telling us that low rates are a bad thing! Why?

  1. Economists keep telling us that we are going to take on too much debt.
  2. What will happen when rates suddenly rise?

So here’s what these guys forget. First off, bank economists look just like me, old with no hair. They remember days when rates were 9 and 10 percent and after five years they have paid off almost no principle. Today, with mortgage rates at 3% or lower, after five years the owner will have paid 15 percent off their mortgage. With 5% down that means 20% equity!

Consider a condo at $400,000. If it only increases at 1% per year, then after 5 years the owner will have almost $100,000 in equity. The second point is interest rates are not going up any time soon. The bond market tells us so. Demographics also tell us that we are in for a period of low mortgage rates in the next five to ten years. So, low mortgage rates are not a good thing, but a great thing. Enjoy.