New Year – Fresh Prespective

Looking into 2006, the consensus is that the Federal Reserve will continue to raise interest rates until the Federal Funds rate is 5.00%. This means prime will rise to 8.00%. This pattern is consistent with the Fed’s aggressive anti-inflation drive dating back to mid-2004. It is widely believed that during the Summer and maybe even into the Fall the Fed will leave interest rates unchanged.

What you and I need to understand is that this strategy reflects the Fed’s belief inflation will be well under-control by the middle of 2006. A stable inflation climate is good for mortgage interest rates, hence, I see mortgage rates remaining relatively stable, with any changes to be within a narrow band.

However, the rise in short term rates mean that you will be paying significantly more for any 2nd mortgage you might have from 2004. With all the appreciation in your home it might be a good time to get rid of that 2nd mortgage and get into a relatively low rate first mortgage.

Happy New Year

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