Get that low APR mortgage fast!
Written by Bill Teddings
Getting a mortgage is easier nowadays than it has ever been, although there are still one or two pointers you should always bear in mind when applying for a loan. Firstly, keep an eye on general interest rates - what you need to remember is that simply having a low rate does NOT make a bigger loan more 'affordable', you still have to pay off money somehow at end of loan, and in these low-inflation times, a big loan now will still be a big loan in 20 years time! This is why 'interest only' loans (loans that do not require you to repay any of capital each month) are maybe not such a great idea anymore.Interest rates tend to follow an inverse relationship to Wall street - when stock market is rising, interest rates tend to fall and vice versa. This is because investors are always looking for best return on their investments. If you keep an eye on Fed rate, and rates offered by big Savings and Loans, you won't go far wrong. Key to understanding interest rates is concept of 'APR' or 'Annual Percentage Rate'. This is a figure used to compare loans from different lenders on a 'fair' basis, because most loans nowadays have different conditions and extras attached to them that have a direct monetary value. In USA and elsewhere, mortgage companies must disclose APR when they advertise a loan rate. This shows true cost of loan to borrower, expressed simply as an effective yearly rate. It basically stops lenders from hiding fees and front-loaded costs behind small print of what appears to be a low interest rate. Here's a simple example. Say you borrow $100 for a year at 5% interest (i.e. you will owe $105 at end of year). Say you also have to pay a $5 'introduction' fee, and your total cost to borrow money will then be $10. What this means is that APR is actually 10%, even though advert that drew you to loan in first place may have legitimately quoted '5%' elsewhere. The APR, however, must admit that real rate is equivalent to 10%.
| | Supply and DemandWritten by Ioannis Evangelos Haramis
An old story says that if you want an "educated economist," all you have to do is get a parrot and train bird to squawk "supply and demand" in response to every question about economy! Not smart enough, but... It's true that theory of supply and demand is a central part of economics. It is widely applicable, and also is a model of way economists try to think most problems through. The theory of supply and demand is a theory of price and output in competitive markets. Adam Smith (1723 - 1790) had argued that each good or service has a "natural price." If price (of bread, for example), is above natural price, then more resources will be attracted into trade (bakeries, in example), and price will return to its "natural" level. We may think of demand as a force tending to increase price of a good, and of supply as a force tending to reduce price. When two forces balance one another, price would neither rise nor fall, but would be stable. This stability leads us to think of an "equilibrium" price. This "equilibrium" exists when price is just high enough so that quantity supplied just equals quantity demanded.
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