Project

INTEREST RATES CHANGES AND PROPERTY OWNERSHIP 2

RENJU PETER

6587690

INTEREST RATES CHANGES, AND PROPERTY OWNERSHIP

Introduction

Many issues affect how property will be owned. Some of these issues revolve the

interest charges and how people in the economy use the present economic

conditions to own properties. The information below will describe the problem

statement that will be used concerning interest rates.

Problem Statement

Interest rates are the number one element in business operations that affect how the

business will be operated. The macroeconomic factors have had a hand in

transforming operations within how property will be owned based on the people's

amount of cash. Several factors go hand in hand with the transformation and

changes within the system. Risk should not be underrated in mortgage financing

(Blanchard 2019). A number of costs need to be factored in when taking mortgage

financing. In most circumstances, mortgage financing is a long-term loan expected to

consume much of the interest rate as attributed to forces in inflation, legislation, and

changes in interest rates by fiscal and monetary policy. In the economic recession of

2008, there were several elements concerning the risk identified by the federal

reserves that needed to be addressed (Altavilla, Boucinha & Peydró, 2018).

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Blanchard (2019) describes issues concerning the cash value that changes daily. In

most occurrences, the value of a property in the present moment is not the same in

the future, and in most occurrences, the value is always high. People will always

want to invest their monies in platforms that add value to their investments

(Dornbusch, 2019). As for property ownership, the high-interest costs are attributed

to inflationary changes and the future value of cash. More importantly, banks and

other lending institutions find it extremely hard to place investments or stocks on

platforms that do not add value to their stocks (Jarociński & Karadi, 2020). When

making mortgage financing, it is prudent that one understands the policies behind

the interest rate changes, which will guide persons wishing to take up credit.

There are several factors to consider before making any investment decision in

property ownership. One has considered the budget constraints that each party has

to bear. One has to look at the income over expenses and the proportion of the

income that can be used to finance the mortgage (Dornbusch, 2019). In most cases,

some people do not make calculated expenditures and forecast growth in

expenditure as there are several unforeseen expenses in the present times. In light

of this, budgeting is an essential tool for property ownership through mortgage as

one has to consider whether they can pay the principal and the interest amounts

(Sovbetov, 2018). Moreover, there are instances where the income may reduce or

increase in the future. This speculation has to be considered as it will go hand in

hand with the interest rate that will be charged and will measure how one can afford

to live within their means while paying for the mortgage (Fornaro & Wolf, 2020).

The agreement payment plan should also be factored in all elements of the budget

as there are some tools and dimensions in which property owners default on their

loans and are forcefully evicted from their households. There are ways and means

INTEREST RATES CHANGES AND PROPERTY OWNERSHIP 4

through which operations are looked into and will affect how one can pay back their

mortgage. When the interest rates are incredibly high, loanees are advised to take

up long-term loans that will enable them to service the loans quickly (Jarociński &

Karadi, 2020). This will also help them make operations smooth and meet

unforeseeable future expenses. When the interest rates are low, it is prudent for

loanees to take up short-term loans that they will quickly pay.

One has also to consider the opportunity cost of the property. In most instances,

some mortgages end up being losses to the homeowners instead of assets. Some

potential investors have taken up loans and invested the loans in assets that

generate income. These assets can finance the debt at the interest rate charged,

and the loanees can also afford to take up mortgages based on the transactions they

have been undertaking from the business. Before undertaking a contract to take up a

loan, the loanee needs to look into the insurance coverage. Some insurance costs

are so high that they result in high loan interest rates. In most instances, bankers

and lending institutions will look into the level of insurance offered for some

properties. If the insurance coverage is too high, the loans will be extremely high

(Altavilla, Boucinha & Peydró, 2018). The systems under which a loan is written and

approved need to be systematic such that all interested parties will have the chance

to attain their objective. Bankers will look to earn from the interest revenue from the

loans. The loanee is seeking to own a property through a mortgage. The government

is seeking to tax all operations from the loanee to the buyer and the seller.

The size of the property will also affect how the loans will be undertaken. Some

properties are in premium soils, and the banks and other financing institutions will

charge higher interest charges on them (Fornaro & Wolf, 2020). On the other hand,

some houses built on undervalued lands may have lower interest rates.

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One factor pushing people towards owning property is the freedom that comes from

owning property. Many people find it expensive to pay out rent and leases on

property they will not fully own. Land is a minimal resource that, when appropriately

appraised, changes macroeconomic factors such as interest rates. Elements such as

valuation, appreciation, and discounts are brought in, which affect how land is valued

at the moment in comparison to the future value of the land.

Conclusion

Several elements bring about changes in interest rates. In light of these events, it is

prudent for any party wishing to advance or change its operations to look into some

aspects that may bring about change in the interest rates. This will increase their

familiarity with interest rates and how it is a contributing factors to owning property.

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References

Altavilla, C., Boucinha, M., & Peydró, J. L. (2018). Monetary policy and bank

profitability in a low interest rate environment. Economic Policy, 33(96), 531-

586.

Blanchard, O. (2019). Public debt and low interest rates. American Economic

Review, 109(4), 1197-1229.

Dornbusch, R. (2019). The theory of flexible exchange rate regimes and

macroeconomic policy. In Flexible Exchange Rates and Stabilization

Policy (pp. 123-143). Routledge.

Fornaro, L., & Wolf, M. (2020). Covid-19 coronavirus and macroeconomic policy.

Jarociński, M., & Karadi, P. (2020). Deconstructing monetary policy surprises—the

role of information shocks. American Economic Journal:

Macroeconomics, 12(2), 1-43.

Sovbetov, Y. (2018). Factors influencing cryptocurrency prices: Evidence from

bitcoin, ethereum, dash, litcoin, and monero. Journal of Economics and

Financial Analysis, 2(2), 1-27.