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S. federal administration, the CBO said. 4.
However, mortgage-backed security investments backed by the US would loose about $13 to $15 billion from advance payments on higher than current interest rate bonds, according to analysts. That' all the truth - but I think it overestimates the cost and benefit of this notion. On the one hand, the utility side can be slightly enhanced by simply optimizing a few numbers.
ýThe CBO document just says that the new, refinanced mortgages would be spent at the "prevailing interest rate" without saying what that course is; I think they are using a course around 4. 5 percent on a 30-year fixed-rate mortgage. However, Agenturpapier trades with much lower returns. For example, if you have a mortgage creditor at an interest of 3.
In addition, the performance side of the calculated Citroën Interest Rate contains the mortgage interest rate saving only for the first year - as well as the saving for the GSEs to have to disburse less cash in warranty liabilities. However, the brainchild here is to fund itself in 30-year loans so that the overall saving over ten or 30 years is much greater than the figures in the stock exchange index.
Meanwhile, the large advance payment deficits are a one-time effort that will never be recurred; it is a little dishonest to take the one-year saving each year, as the CBO does, and then deduct a large one-time effort to pay the federation $600 million in net costs.
So why not save two years, or three, or ten? They are computed by taking the fair value of the mortgage-backed bonds secured by the mortgage loans being funded and then supposing that these bonds are disbursed at 100 cent per dollars. Given that the shares are currently traded at around 106 cent on the US dollar, well above their nominal value, anyone quoted on the stock exchange would lose around 6% of their stake.
Allow me to put this into English for you: The US Federal Bank says that if we were to pay out 100 cent per US dollars to existing borrowers, they would loose up to 15 billion dollars. This is completely legitimate and correct: all these mortgage loans can be payed in advance. Whoever buys a Pfandbrief primarily takes care of the advance payment risks - that would hardly come out of the open.
However, what is currently going on is that Pfandbriefe are being traded well above face value just because real estate buyers are conscious that many home owners find it difficult to get them. They generally take unfair advantage of the fact that home owners are involved in above-average mortgage interest payments. It would be a good thing if the value of their bond fell to the nominal value of the bond.
It is not good for Pfandbriefe to be traded well below face value, but it is also not good for them to be trading well above face value - it is a symptom of failing markets. And one of the ways that money exploits work in this land is the way that home-owners who can pay their mortgage in advance for free often do not use this facility, even if it is available to them, saving them ten thousand bucks.
It is also timely that home owners who have paid their mortgage hard, in full, throughout the entire credit crunch and to this date, should receive some sort of rewards from the state. Obviously, this is a much better way to do this than the terrible and enormously costly mortgage interest rate avoidance scheme.
We now need the US as a whole to take full benefit of the incredible low interest rates climate. Mortgage wholesale refinancing is a good way to achieve exactly this objective.