Interest Rates Increasing

[Ryan Sajdera]

Hey BP,

Just wondering what everyone's thoughts were about the rising interest rates. Do you think we will ever see 8% interest rates again? If so, how do you possibly make money in REI if you are paying out the nose on just interest? I am working up a loan now and its a 5/1 ARM. I'm a little nervous about what interest rates might be in 5 years. Any thoughts??

Ryan

[Joe Splitrock]

@Ryan Sajdera it is only the last seven years that the fed has held prime at or near 0%, which is why we have these low rates. Prior to that, getting a loan at 8% wasn't horrible and in fact rates have been much higher than that. I do expect the fed to increase prime 0.25% per quarter and I could see mortgages back up towards 8% within the next few years. I know real estate agents will hate me for saying this, but the increase is good to cool down this market. Prices need to be cooled down or we will end in a crash again. 

I would not get a 5/1 ARM right now unless you are sure you are selling it during those 5 years. Lock in a 30 year rate now.