The Fear and Reality of Rates Rising

....I read too much....

When will the sky start falling? It's a question put forth nearly every 3 days by some financial expert about the current state of real estate in today's day and age. I read articles constantly about the real estate bubble bursting and unfortunately, none of them are about how to be prepared.
The consensus among those pessimists is 'soon, any day now, like really, it's going to happen, this can't last forever, the real estate bubble will burst.'

But man, doesn't it feel like they have been saying this forever?

I admit I am fairly new to the mortgage broker business. I've never seen a public lender rate at above 6% (which was my 1st house mortage). I can't fathom my parents' mortgage, where they had loans of 11-18% interest. So what's happening?

I'm not financial expert, but here's one thing; Money is not infinite. There has to be balance. This is kept in check by 'inflation'. You may remember discussing this in high school economics or socials class. At one time, governments thought the easiest answer to nobody having money was just to make more. I remember my teacher using Post-Germany WW1 as an example of inflation.

And then I found the Internet using this as an example.

But that was centuries ago! Well, not really. More like only 1 century ago. So this idea of inflation or cause and effect, taken as a moment of time in all known history is relatively new.

Amending a Point About the IRD Buy-out/Penalty

So previously I wrote a definition of the Interest Rate differential (see below w/ classic Family Guy moment). I am going to avoid my opinion on the preference for lenders to call the IRD a 'buy-out' instead of a 'penalty' (which it is, oops). 

Interest Rate differential (IRD) If you wish to perhaps buy out your mortgage as you found a better rate elsewhere or wound up with a lot of extra cash, an IRD is what your bank will charge you for breaking the term's agreement. It handcuffs a lot of owners who may wish to take advantage of lower rates as an IRD can run into the thousands of dollars. Simply put, the IRD can be equivalent to a kick in the balls when you check into how much it would cost to pay out your mortgage.

there's your IRD!

Anyways, the large kick to the balls when you find out that if you wish to take advantage of lower rates will cost you $2000-$20,000 is the #1 reason people stay with their current mortgage lenders. 85% of these people inquiring as to penalties buy-outs are with the Big Banks. They, in turn, are being pro-active in keeping you (their best, loyal contributor to their shareholders) from switching over to a smaller lender that offers better savings.

That's just the interest I'm paying for my mortgage?

YET, is that penalty buy-out enough to stop you from investigating your options? 

Mortgage Penalties

Or ... How much will I really save? Like, really? 

It's been a crazy millennium so far for mortgages. Long gone are the olden days of what at the time seemed reasonable 6-10% interest rates pre Y2K (remember that fun?). Instead we have had a steady mantra of 'rates won't go lower' and yet they continue to do so - just months ago the industry-shocking rate of below 3% was announced and experts were all like 'WTF!!! That's insane.'

Then this monthin Canada, another mortgage lender announced a 1.99% interest rate and industry experts heads exploded.

DO NOT PRESS PLAY IF YOU DO NOT WANT TO WATCH SOMEONE'S HEAD EXPLODE:

ah...science.

Moving on...now keep in mind that the interest rate in it's essence is the amount that a lender charges you for lending you money. If I lend you $100 and then get you to fill out a bunch of forms that legally say you will be paying me back $110 in six months then I am charging you a flat 10% interest fee.

Pretty simple at it's core. But nothing is simple in banking finances. There are a lot of little tricks to hide that true number, as consumers all love a deal. You got a weed whacker for $129 at Canadian Tire? I bought one at Sears for only $125! Sucker! Banks charge you a semi-annual interest rate, meaning that 10% isn't actually 10% but rather 5% charged to your amount owing 2x a year. And that's just the tip of the iceberg and also maybe for another column.