Amid growing anticipation that historically low bank lending interest rates would soon begin to rise, a bit of surprise news has developed.
Mortgage lending rates have dropped yet again.
“Lower interests stimulate borrowing” observed David Smith of Smith Investment Management. During his recent appearance on Austin Hill In The Morning, Smith suggested that officials in the U.S. government might be sensing an economic slowdown on the horizon, and a lowering of mortgage interest rates is seen as a way to encourage spending and economic activity.
“Years ago I would have said that we have a competitive free market financial system where the availability of capital and the relative level of financial risk were the factors that set bank lending rates” Smith stated. “That’s not what we have any more.”
Noting that the U.S. Federal Reserve has far more control over private banks than in previous eras, he stated,
“Today, the Fed sets the price that we pay for renting money, and it does so very directly. It’s possible that government officials are seeing the panic over the Ebola virus, and the concern over the Islamic State, and other problems in the world, and they are sensing that there could be an economic slowdown.”
Just a few weeks ago, mortgage lending rates fell to as low as 4.01%. That’s the lowest since May of 2013, where mortgage-lending rates were as low as 3.99%.
“Now is no time for cookie-cutter answers to the financial issues before us” he stated. “I think we all need to prayerfully consider what God would have us do in our individual situations, with investments, mortgages, college tuition loans, everything.”
Smith, who along with advising investment clients also teaches a Bible-based finance class to children, is quick to reference Scripture in his work. “We always have to remain mindful of our source of provision,” he says. “It is written in Philippians 4:19, for example, that ‘my God will meet all your needs according to the riches of his glory in Christ Jesus.’” He also notes both Old Testament and New Testament wisdom about the dilemma of being a debtor.
So, is now a good time to take advantage of amazingly low interest rates even if that means taking on more debt?
“In the world we live in today, most people don’t have cash to buy a home or a car” he says. “But we need to be prudent in our borrowing.”
For those who are seeking to refinance an existing mortgage, Smith says, “get it done quickly and lock down these low rates.”
As for getting in to a new mortgage loan altogether, he says “I’m not a fan of that, no. Unless you’re investing in a secured asset at this point, I’d advise against new debt right now.”
“We have an economy that is about 70% based on spending and consumption, rather than production,” he says that “our financial system is kind of built on pyramiding more debt upon more debt. It is dangerous, and the best way to protect ourselves from the dangers is to minimize our debt.”