What We Know Or Do Not Know
When I’m asked if I know something specific such as, “Will the interest go up?” (I am rarely asked if they will come down), my answer is that “I know that I do not know”. When I looked up who coined this saying on Wikipedia, I discovered that the sayings “I know that I know nothing” or “I know one thing – that I know nothing.” are sometimes called the Socratic Paradox. It turned out that Socrates himself never recorded it. It is widely attributed to Plato, who wrote down Socrates’ teachings, but actually occurs nowhere in Plato’s works.
Going back to the interest rates. On Sunday, January 15th, the SF Chronicle reported — “Fed Official: “We’re in a good place.” The article reported that the Fed expects to increase interest rates three times this year. When interest went up after the Presidential Elections, the same paper reported on November 27th, “Quick Mortgage Rate Rise Surprises Both Buyers And Lenders.” This is not the first surprise. Last year the world was surprised by Donald Trump winning the election to become next U.S. President. In 2008 the world was surprised by the economic meltdown, and so it goes. We can be only surprised if we claim that we know the outcome of anything in our lives, like that night follows the day. Are you sure? Perhaps it is the reverse, after all, in the Torah it is written, “And there was evening, and there was morning” (Genesis 1:13).
When the Federal Reserve Bank will increase its benchmark interest rate, as an indication that the economy is improving, how will it affect the mortgage rate? My answer is “I know that I do not know”. There are many factors which affect the fluctuation of the mortgage rates. The Fed’s increase of the rate – the cost that banks and depository institutions charge one another for overnight loans – has only an indirect impact on mortgage rates. The Fed’s rate, sometimes called the Discount rate, which is currently only 0.75%, is the basis of the Prime rate, the rate that commercial banks charge their most credit worth customers. The interest rates for the Lines of Credit, secured by the real estate, are often tied to the Prime rate, which is usually 3% above the Discount rate, plus (or minus if you received your L/C a while ago) the margin. Thus, if the margin is 2%, your rate today would be 5.75%. When the Prime rate will go up, so will the rate on your line of credit. If you want to refinance to combine your first mortgage, with the existing line of credit, this can create a cash-out, which might increase the rate on the combined loan amount. Even though I’ve been in the mortgage business for 33 years, authored two books on the subject, my claim is the same – “I know that I do not know.” The mortgage business is very dynamic. No one knows, but I expect that the new administration will ease the way the industry is functioning. This, in turn, will allow more money to flow into home financing (after all it is the backbone of the economy). And this might lead to interest rates going down. Enjoy and Share.
P.S. But there is at least one thing I know. Regardless what happens with the interest rates, the sun will appear in the sky and will illuminate the ocean. I witnessed it many times in the Sea Ranch and now you can too. And yes, there is one more thing. I know that if you go to Amazon.com and type Manny Kagan or “42 Encounters in San Francisco”, you will be able to read some remarkable reviews, which will convince you to buy the book as well.
Do Not Keep Me As A Secret!
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Cheers,
