Interest rates

[davelj]

[quote=4plexowner]That’s a good point, Raybyrnes

The article pointed out that the 2-3% fee the credit card companies charge the merchants is never mentioned when the credit card companies are testifying to Congress about why they need to charge 26-29% interest rates

[/quote]

You’re getting two different types of companies confused with each other. That’s why the processing fees are never mentioned.

The folks that testify to Congress are the underwriters (or lenders) like Capital One, Citi, etc. These companies don’t get the merchant processing fee. They just collect interest (and theoretically principal… one day).

Visa, Mastercard, Amex, etc. are processors. They collect the merchant processing fee. I believe Amex and Discover are the only two companies that collect both (that is, they are underwriters and processors), but they are a small percentage of the total due to the dominance of Visa and Mastercard.

(Actually I think folks from Visa and Mastercard have testified before Congress as well, but on a totally different subject than you’re referring to – monopoly/competitive issues.)

But all that aside, would you like to be in the credit card industry right now? Even with these “usurious” rates? Most of the underwriters are losing their asses right now, despite the high rates, because charge-off levels are so high. It’s pretty clear that, if anything, they haven’t been charging high enough rates as of late – or at least not high enough to reflect the risk inherent in their borrowers. Higher interest rates generally reflect higher risk, and higher risk generally reflects a higher probability of loss… it’s that old saw about risk and return…

[davelj]

[quote=fishsticks]
All things being equal, I’d rather buy a cheaper house with a high interest rate than an expensive house with a low interest rate.

[/quote]

The problem, of course, is that all things are rarely equal.

The longer you’re planning to stay in a house, the more important a (low) fixed interest rate is to you, and the less important the price is. The price is still important, don’t get me wrong – but the longer you’re planning to stay in a house, the greater the weight on the fixed rate component.

Higher inflation will cause rates to go higher which will impact buyers’ ability to pay. But higher inflation will also drive rents up, thus making real estate in general more valuable. Which factor will dominate the other in the future is hard to say. (Something about predictions being hard, especially about the future, comes to mind.)

At some point, the low fixed rate vs. paying a lower price (with a higher fixed rate) is six of one, half dozen of the other… if you’re planning on staying in the home for a long time. But a low rate alone is clearly not a good reason to buy. It will only cover up a modest amount of mistake in overpaying.

[davelj]

[quote=fishsticks]
All things being equal, I’d rather buy a cheaper house with a high interest rate than an expensive house with a low interest rate.

[/quote]

The problem, of course, is that all things are rarely equal.

The longer you’re planning to stay in a house, the more important a (low) fixed interest rate is to you, and the less important the price is. The price is still important, don’t get me wrong – but the longer you’re planning to stay in a house, the greater the weight on the fixed rate component.

Higher inflation will cause rates to go higher which will impact buyers’ ability to pay. But higher inflation will also drive rents up, thus making real estate in general more valuable. Which factor will dominate the other in the future is hard to say. (Something about predictions being hard, especially about the future, comes to mind.)

At some point, the low fixed rate vs. paying a lower price (with a higher fixed rate) is six of one, half dozen of the other… if you’re planning on staying in the home for a long time. But a low rate alone is clearly not a good reason to buy. It will only cover up a modest amount of mistake in overpaying.

[davelj]

[quote=fishsticks]
All things being equal, I’d rather buy a cheaper house with a high interest rate than an expensive house with a low interest rate.

[/quote]

The problem, of course, is that all things are rarely equal.

The longer you’re planning to stay in a house, the more important a (low) fixed interest rate is to you, and the less important the price is. The price is still important, don’t get me wrong – but the longer you’re planning to stay in a house, the greater the weight on the fixed rate component.

Higher inflation will cause rates to go higher which will impact buyers’ ability to pay. But higher inflation will also drive rents up, thus making real estate in general more valuable. Which factor will dominate the other in the future is hard to say. (Something about predictions being hard, especially about the future, comes to mind.)

At some point, the low fixed rate vs. paying a lower price (with a higher fixed rate) is six of one, half dozen of the other… if you’re planning on staying in the home for a long time. But a low rate alone is clearly not a good reason to buy. It will only cover up a modest amount of mistake in overpaying.

[davelj]

[quote=fishsticks]
All things being equal, I’d rather buy a cheaper house with a high interest rate than an expensive house with a low interest rate.

[/quote]

The problem, of course, is that all things are rarely equal.

The longer you’re planning to stay in a house, the more important a (low) fixed interest rate is to you, and the less important the price is. The price is still important, don’t get me wrong – but the longer you’re planning to stay in a house, the greater the weight on the fixed rate component.

Higher inflation will cause rates to go higher which will impact buyers’ ability to pay. But higher inflation will also drive rents up, thus making real estate in general more valuable. Which factor will dominate the other in the future is hard to say. (Something about predictions being hard, especially about the future, comes to mind.)

At some point, the low fixed rate vs. paying a lower price (with a higher fixed rate) is six of one, half dozen of the other… if you’re planning on staying in the home for a long time. But a low rate alone is clearly not a good reason to buy. It will only cover up a modest amount of mistake in overpaying.

[davelj]

[quote=fishsticks]
All things being equal, I’d rather buy a cheaper house with a high interest rate than an expensive house with a low interest rate.

[/quote]

The problem, of course, is that all things are rarely equal.

The longer you’re planning to stay in a house, the more important a (low) fixed interest rate is to you, and the less important the price is. The price is still important, don’t get me wrong – but the longer you’re planning to stay in a house, the greater the weight on the fixed rate component.

Higher inflation will cause rates to go higher which will impact buyers’ ability to pay. But higher inflation will also drive rents up, thus making real estate in general more valuable. Which factor will dominate the other in the future is hard to say. (Something about predictions being hard, especially about the future, comes to mind.)

At some point, the low fixed rate vs. paying a lower price (with a higher fixed rate) is six of one, half dozen of the other… if you’re planning on staying in the home for a long time. But a low rate alone is clearly not a good reason to buy. It will only cover up a modest amount of mistake in overpaying.

[patientrenter]

4plex, I am sure there are public companies that hold CC debt. If that turns out to be extraordinarily profitable, in spite of the bad CC debt that’s coming, then you could become rich by simply buying their stocks.

Any experts want to point to public companies that have a much higher than average exposure to CC debt so 4plex can test his theory and get rich?

If you do get rich by following through on this, 4plex, you owe us a beer!

[patientrenter]

4plex, I am sure there are public companies that hold CC debt. If that turns out to be extraordinarily profitable, in spite of the bad CC debt that’s coming, then you could become rich by simply buying their stocks.

Any experts want to point to public companies that have a much higher than average exposure to CC debt so 4plex can test his theory and get rich?

If you do get rich by following through on this, 4plex, you owe us a beer!

[patientrenter]

4plex, I am sure there are public companies that hold CC debt. If that turns out to be extraordinarily profitable, in spite of the bad CC debt that’s coming, then you could become rich by simply buying their stocks.

Any experts want to point to public companies that have a much higher than average exposure to CC debt so 4plex can test his theory and get rich?

If you do get rich by following through on this, 4plex, you owe us a beer!

[patientrenter]

4plex, I am sure there are public companies that hold CC debt. If that turns out to be extraordinarily profitable, in spite of the bad CC debt that’s coming, then you could become rich by simply buying their stocks.

Any experts want to point to public companies that have a much higher than average exposure to CC debt so 4plex can test his theory and get rich?

If you do get rich by following through on this, 4plex, you owe us a beer!

[patientrenter]

4plex, I am sure there are public companies that hold CC debt. If that turns out to be extraordinarily profitable, in spite of the bad CC debt that’s coming, then you could become rich by simply buying their stocks.

Any experts want to point to public companies that have a much higher than average exposure to CC debt so 4plex can test his theory and get rich?

If you do get rich by following through on this, 4plex, you owe us a beer!

[4plexowner]

stocks are for suckers and I’m not a sucker …

[4plexowner]

stocks are for suckers and I’m not a sucker …

[4plexowner]

stocks are for suckers and I’m not a sucker …

[4plexowner]

stocks are for suckers and I’m not a sucker …

[Author]

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