Interest rates

[peterb]

In an inflationary environment, I would agree completely. But in a deflationary environment, the risk of losing the downpayment is fairly great. Assuming 5% to 20% plus closing costs, that’s a chunk of change I’d rather keep for myself. But, if you could get a zero down loan, that would be worthwhile, IMO.

In delfation, keeping the cash turns out to often be the best “investment” of all.

[JustLurking]

Actually Dave, I don’t think you have it quite right. MasterCard and Visa are not processors. My company is a merchant and this is an excerpt from our payment processor’s website:

Credit Card Processing Market Participants

Below is a brief list of the parties involved in processing a credit card transaction, the role each participant plays and the most common industry nomenclature for each party.

Visa® and MasterCard® Associations
Put simply, VISA and MasterCard are associations of banks whose primary purpose is to set rules and regulations for the acceptance of credit cards and protect the integrity of their brands and the credit card processing industry. VISA and MasterCard are also responsible for setting Interchange Rates.

Although Visa and MasterCard are responsible for setting the Interchange Rates, they do not receive a significant portion of these fees. Instead, for every transaction conducted with a Visa or MasterCard, they receive “Dues & Assessments”. Currently, Visa receives 0.0925% of the sale, and MasterCard receives 0.095% of the sale. It is also important to understand that companies such as American Express® and Discover® are not Card Associations. To accept these types of cards Merchants must have separate agreements with these companies.

Card Issuing Member Banks

Card Issuing Member Banks are members of MasterCard and Visa that issue credit and debit cards to their customers. Every time a Visa or MasterCard branded credit card is used, the member bank that issued that credit card earns the Interchange Fee associated with the transaction. This fee is designed to compensate Card Issuing Member banks for the risk associated with the transaction.

*********

The site goes on the describe all of the other parties to a credit card transaction – the merchant bank, the front-end processor, the back-end processor, the gateway provider…

Everyone collects a fee, but the interchange fee (about 2% – I’d have to be at work to look at my statements to see the current Visa and MC interchange rates) goes to the card issuing bank.

[JustLurking]

Actually Dave, I don’t think you have it quite right. MasterCard and Visa are not processors. My company is a merchant and this is an excerpt from our payment processor’s website:

Credit Card Processing Market Participants

Below is a brief list of the parties involved in processing a credit card transaction, the role each participant plays and the most common industry nomenclature for each party.

Visa® and MasterCard® Associations
Put simply, VISA and MasterCard are associations of banks whose primary purpose is to set rules and regulations for the acceptance of credit cards and protect the integrity of their brands and the credit card processing industry. VISA and MasterCard are also responsible for setting Interchange Rates.

Although Visa and MasterCard are responsible for setting the Interchange Rates, they do not receive a significant portion of these fees. Instead, for every transaction conducted with a Visa or MasterCard, they receive “Dues & Assessments”. Currently, Visa receives 0.0925% of the sale, and MasterCard receives 0.095% of the sale. It is also important to understand that companies such as American Express® and Discover® are not Card Associations. To accept these types of cards Merchants must have separate agreements with these companies.

Card Issuing Member Banks

Card Issuing Member Banks are members of MasterCard and Visa that issue credit and debit cards to their customers. Every time a Visa or MasterCard branded credit card is used, the member bank that issued that credit card earns the Interchange Fee associated with the transaction. This fee is designed to compensate Card Issuing Member banks for the risk associated with the transaction.

*********

The site goes on the describe all of the other parties to a credit card transaction – the merchant bank, the front-end processor, the back-end processor, the gateway provider…

Everyone collects a fee, but the interchange fee (about 2% – I’d have to be at work to look at my statements to see the current Visa and MC interchange rates) goes to the card issuing bank.

[JustLurking]

Actually Dave, I don’t think you have it quite right. MasterCard and Visa are not processors. My company is a merchant and this is an excerpt from our payment processor’s website:

Credit Card Processing Market Participants

Below is a brief list of the parties involved in processing a credit card transaction, the role each participant plays and the most common industry nomenclature for each party.

Visa® and MasterCard® Associations
Put simply, VISA and MasterCard are associations of banks whose primary purpose is to set rules and regulations for the acceptance of credit cards and protect the integrity of their brands and the credit card processing industry. VISA and MasterCard are also responsible for setting Interchange Rates.

Although Visa and MasterCard are responsible for setting the Interchange Rates, they do not receive a significant portion of these fees. Instead, for every transaction conducted with a Visa or MasterCard, they receive “Dues & Assessments”. Currently, Visa receives 0.0925% of the sale, and MasterCard receives 0.095% of the sale. It is also important to understand that companies such as American Express® and Discover® are not Card Associations. To accept these types of cards Merchants must have separate agreements with these companies.

Card Issuing Member Banks

Card Issuing Member Banks are members of MasterCard and Visa that issue credit and debit cards to their customers. Every time a Visa or MasterCard branded credit card is used, the member bank that issued that credit card earns the Interchange Fee associated with the transaction. This fee is designed to compensate Card Issuing Member banks for the risk associated with the transaction.

*********

The site goes on the describe all of the other parties to a credit card transaction – the merchant bank, the front-end processor, the back-end processor, the gateway provider…

Everyone collects a fee, but the interchange fee (about 2% – I’d have to be at work to look at my statements to see the current Visa and MC interchange rates) goes to the card issuing bank.

[JustLurking]

Actually Dave, I don’t think you have it quite right. MasterCard and Visa are not processors. My company is a merchant and this is an excerpt from our payment processor’s website:

Credit Card Processing Market Participants

Below is a brief list of the parties involved in processing a credit card transaction, the role each participant plays and the most common industry nomenclature for each party.

Visa® and MasterCard® Associations
Put simply, VISA and MasterCard are associations of banks whose primary purpose is to set rules and regulations for the acceptance of credit cards and protect the integrity of their brands and the credit card processing industry. VISA and MasterCard are also responsible for setting Interchange Rates.

Although Visa and MasterCard are responsible for setting the Interchange Rates, they do not receive a significant portion of these fees. Instead, for every transaction conducted with a Visa or MasterCard, they receive “Dues & Assessments”. Currently, Visa receives 0.0925% of the sale, and MasterCard receives 0.095% of the sale. It is also important to understand that companies such as American Express® and Discover® are not Card Associations. To accept these types of cards Merchants must have separate agreements with these companies.

Card Issuing Member Banks

Card Issuing Member Banks are members of MasterCard and Visa that issue credit and debit cards to their customers. Every time a Visa or MasterCard branded credit card is used, the member bank that issued that credit card earns the Interchange Fee associated with the transaction. This fee is designed to compensate Card Issuing Member banks for the risk associated with the transaction.

*********

The site goes on the describe all of the other parties to a credit card transaction – the merchant bank, the front-end processor, the back-end processor, the gateway provider…

Everyone collects a fee, but the interchange fee (about 2% – I’d have to be at work to look at my statements to see the current Visa and MC interchange rates) goes to the card issuing bank.

[JustLurking]

Actually Dave, I don’t think you have it quite right. MasterCard and Visa are not processors. My company is a merchant and this is an excerpt from our payment processor’s website:

Credit Card Processing Market Participants

Below is a brief list of the parties involved in processing a credit card transaction, the role each participant plays and the most common industry nomenclature for each party.

Visa® and MasterCard® Associations
Put simply, VISA and MasterCard are associations of banks whose primary purpose is to set rules and regulations for the acceptance of credit cards and protect the integrity of their brands and the credit card processing industry. VISA and MasterCard are also responsible for setting Interchange Rates.

Although Visa and MasterCard are responsible for setting the Interchange Rates, they do not receive a significant portion of these fees. Instead, for every transaction conducted with a Visa or MasterCard, they receive “Dues & Assessments”. Currently, Visa receives 0.0925% of the sale, and MasterCard receives 0.095% of the sale. It is also important to understand that companies such as American Express® and Discover® are not Card Associations. To accept these types of cards Merchants must have separate agreements with these companies.

Card Issuing Member Banks

Card Issuing Member Banks are members of MasterCard and Visa that issue credit and debit cards to their customers. Every time a Visa or MasterCard branded credit card is used, the member bank that issued that credit card earns the Interchange Fee associated with the transaction. This fee is designed to compensate Card Issuing Member banks for the risk associated with the transaction.

*********

The site goes on the describe all of the other parties to a credit card transaction – the merchant bank, the front-end processor, the back-end processor, the gateway provider…

Everyone collects a fee, but the interchange fee (about 2% – I’d have to be at work to look at my statements to see the current Visa and MC interchange rates) goes to the card issuing bank.

[Bob]

[quote=4plexowner]”I’d rather buy a cheaper house with a high interest rate than an expensive house with a low interest rate”

amen to that – high interest rates is one of the things that will cause a real market bottom – as interest rates rise housing prices will drop – at the extreme, interest rates would be so high (mortgages in the 1980s were as high as 21% with 14% being typical) that only cash buyers would be able to purchase real estate (and you can imagine what prices would be like in that environment)
[/quote]

I’ve spent a few posts discussing this very issue, and let me say one thing. History always seems to repeat itself. The Federal Reserve and the Obama administration have implemented spending policies to create long term inflation. This was designed to fight the current deflationary cycle we’ve been in the last year or so. The problem is that in fighting deflation, they are creating an even bigger problem down the road, which is the devaluation of the dollar and inflation.

As a previous poster suggested, the Federal Reserve is currently buying TRILLIONS of dollars worth on US treasuries to jumpstart the economy after seeing that none of the other measures implemented by the Feds were working. But the Feds admit they won’t continue purchasing US treasuries indefinately, nor could they even if they wanted to. What does that mean ? It means long term interest rates will go higher as the economy improves, and the possibility of a bond market bubble.

Although I’m not predicting it, I wouldn’t be surprised if rates on a 30 year fixed went up to 8% by the end of 2010. As rates go up, fewer people will be able to afford loans, and housing prices will remain stagnant.

[Bob]

[quote=4plexowner]”I’d rather buy a cheaper house with a high interest rate than an expensive house with a low interest rate”

amen to that – high interest rates is one of the things that will cause a real market bottom – as interest rates rise housing prices will drop – at the extreme, interest rates would be so high (mortgages in the 1980s were as high as 21% with 14% being typical) that only cash buyers would be able to purchase real estate (and you can imagine what prices would be like in that environment)
[/quote]

I’ve spent a few posts discussing this very issue, and let me say one thing. History always seems to repeat itself. The Federal Reserve and the Obama administration have implemented spending policies to create long term inflation. This was designed to fight the current deflationary cycle we’ve been in the last year or so. The problem is that in fighting deflation, they are creating an even bigger problem down the road, which is the devaluation of the dollar and inflation.

As a previous poster suggested, the Federal Reserve is currently buying TRILLIONS of dollars worth on US treasuries to jumpstart the economy after seeing that none of the other measures implemented by the Feds were working. But the Feds admit they won’t continue purchasing US treasuries indefinately, nor could they even if they wanted to. What does that mean ? It means long term interest rates will go higher as the economy improves, and the possibility of a bond market bubble.

Although I’m not predicting it, I wouldn’t be surprised if rates on a 30 year fixed went up to 8% by the end of 2010. As rates go up, fewer people will be able to afford loans, and housing prices will remain stagnant.

[Bob]

[quote=4plexowner]”I’d rather buy a cheaper house with a high interest rate than an expensive house with a low interest rate”

amen to that – high interest rates is one of the things that will cause a real market bottom – as interest rates rise housing prices will drop – at the extreme, interest rates would be so high (mortgages in the 1980s were as high as 21% with 14% being typical) that only cash buyers would be able to purchase real estate (and you can imagine what prices would be like in that environment)
[/quote]

I’ve spent a few posts discussing this very issue, and let me say one thing. History always seems to repeat itself. The Federal Reserve and the Obama administration have implemented spending policies to create long term inflation. This was designed to fight the current deflationary cycle we’ve been in the last year or so. The problem is that in fighting deflation, they are creating an even bigger problem down the road, which is the devaluation of the dollar and inflation.

As a previous poster suggested, the Federal Reserve is currently buying TRILLIONS of dollars worth on US treasuries to jumpstart the economy after seeing that none of the other measures implemented by the Feds were working. But the Feds admit they won’t continue purchasing US treasuries indefinately, nor could they even if they wanted to. What does that mean ? It means long term interest rates will go higher as the economy improves, and the possibility of a bond market bubble.

Although I’m not predicting it, I wouldn’t be surprised if rates on a 30 year fixed went up to 8% by the end of 2010. As rates go up, fewer people will be able to afford loans, and housing prices will remain stagnant.

[Bob]

[quote=4plexowner]”I’d rather buy a cheaper house with a high interest rate than an expensive house with a low interest rate”

amen to that – high interest rates is one of the things that will cause a real market bottom – as interest rates rise housing prices will drop – at the extreme, interest rates would be so high (mortgages in the 1980s were as high as 21% with 14% being typical) that only cash buyers would be able to purchase real estate (and you can imagine what prices would be like in that environment)
[/quote]

I’ve spent a few posts discussing this very issue, and let me say one thing. History always seems to repeat itself. The Federal Reserve and the Obama administration have implemented spending policies to create long term inflation. This was designed to fight the current deflationary cycle we’ve been in the last year or so. The problem is that in fighting deflation, they are creating an even bigger problem down the road, which is the devaluation of the dollar and inflation.

As a previous poster suggested, the Federal Reserve is currently buying TRILLIONS of dollars worth on US treasuries to jumpstart the economy after seeing that none of the other measures implemented by the Feds were working. But the Feds admit they won’t continue purchasing US treasuries indefinately, nor could they even if they wanted to. What does that mean ? It means long term interest rates will go higher as the economy improves, and the possibility of a bond market bubble.

Although I’m not predicting it, I wouldn’t be surprised if rates on a 30 year fixed went up to 8% by the end of 2010. As rates go up, fewer people will be able to afford loans, and housing prices will remain stagnant.

[Bob]

[quote=4plexowner]”I’d rather buy a cheaper house with a high interest rate than an expensive house with a low interest rate”

amen to that – high interest rates is one of the things that will cause a real market bottom – as interest rates rise housing prices will drop – at the extreme, interest rates would be so high (mortgages in the 1980s were as high as 21% with 14% being typical) that only cash buyers would be able to purchase real estate (and you can imagine what prices would be like in that environment)
[/quote]

I’ve spent a few posts discussing this very issue, and let me say one thing. History always seems to repeat itself. The Federal Reserve and the Obama administration have implemented spending policies to create long term inflation. This was designed to fight the current deflationary cycle we’ve been in the last year or so. The problem is that in fighting deflation, they are creating an even bigger problem down the road, which is the devaluation of the dollar and inflation.

As a previous poster suggested, the Federal Reserve is currently buying TRILLIONS of dollars worth on US treasuries to jumpstart the economy after seeing that none of the other measures implemented by the Feds were working. But the Feds admit they won’t continue purchasing US treasuries indefinately, nor could they even if they wanted to. What does that mean ? It means long term interest rates will go higher as the economy improves, and the possibility of a bond market bubble.

Although I’m not predicting it, I wouldn’t be surprised if rates on a 30 year fixed went up to 8% by the end of 2010. As rates go up, fewer people will be able to afford loans, and housing prices will remain stagnant.

[davelj]

[quote=JustLurking]Actually Dave, I don’t think you have it quite right. MasterCard and Visa are not processors. My company is a merchant and this is an excerpt from our payment processor’s website:

Credit Card Processing Market Participants

Below is a brief list of the parties involved in processing a credit card transaction, the role each participant plays and the most common industry nomenclature for each party.

Visa® and MasterCard® Associations
Put simply, VISA and MasterCard are associations of banks whose primary purpose is to set rules and regulations for the acceptance of credit cards and protect the integrity of their brands and the credit card processing industry. VISA and MasterCard are also responsible for setting Interchange Rates.

Although Visa and MasterCard are responsible for setting the Interchange Rates, they do not receive a significant portion of these fees. Instead, for every transaction conducted with a Visa or MasterCard, they receive “Dues & Assessments”. Currently, Visa receives 0.0925% of the sale, and MasterCard receives 0.095% of the sale. It is also important to understand that companies such as American Express® and Discover® are not Card Associations. To accept these types of cards Merchants must have separate agreements with these companies.

Card Issuing Member Banks

Card Issuing Member Banks are members of MasterCard and Visa that issue credit and debit cards to their customers. Every time a Visa or MasterCard branded credit card is used, the member bank that issued that credit card earns the Interchange Fee associated with the transaction. This fee is designed to compensate Card Issuing Member banks for the risk associated with the transaction.

*********

The site goes on the describe all of the other parties to a credit card transaction – the merchant bank, the front-end processor, the back-end processor, the gateway provider…

Everyone collects a fee, but the interchange fee (about 2% – I’d have to be at work to look at my statements to see the current Visa and MC interchange rates) goes to the card issuing bank.
[/quote]

My use of the word “processor” with respect to Visa and MC was lazy and incorrect. Also, while I knew that these fees were split between the issuer, merchant processor and credit card associations (the correct word, obviously), I gotta say that I didn’t realize how little went to the associations. I thought it was more like half of the total.

Having said that, assuming a 150 bps average interchange fee, after paying the association and the merchant processors (the companies that actually process the transactions), I’d bet there isn’t more than 100 bps left for the issuing bank (although that’s more than I would have thought). So, assuming a 20% average credit card rate, another 1% – while helpful – isn’t where the profit is.

But, clearly, I was wrong about the breakdown of how much of the interchange fee went to which party. Won’t be the last time…

Thanks for providing clarity on this issue. While I don’t work with banks that issue credit cards, I should know more about the basics of credit card transactions.

[davelj]

[quote=JustLurking]Actually Dave, I don’t think you have it quite right. MasterCard and Visa are not processors. My company is a merchant and this is an excerpt from our payment processor’s website:

Credit Card Processing Market Participants

Below is a brief list of the parties involved in processing a credit card transaction, the role each participant plays and the most common industry nomenclature for each party.

Visa® and MasterCard® Associations
Put simply, VISA and MasterCard are associations of banks whose primary purpose is to set rules and regulations for the acceptance of credit cards and protect the integrity of their brands and the credit card processing industry. VISA and MasterCard are also responsible for setting Interchange Rates.

Although Visa and MasterCard are responsible for setting the Interchange Rates, they do not receive a significant portion of these fees. Instead, for every transaction conducted with a Visa or MasterCard, they receive “Dues & Assessments”. Currently, Visa receives 0.0925% of the sale, and MasterCard receives 0.095% of the sale. It is also important to understand that companies such as American Express® and Discover® are not Card Associations. To accept these types of cards Merchants must have separate agreements with these companies.

Card Issuing Member Banks

Card Issuing Member Banks are members of MasterCard and Visa that issue credit and debit cards to their customers. Every time a Visa or MasterCard branded credit card is used, the member bank that issued that credit card earns the Interchange Fee associated with the transaction. This fee is designed to compensate Card Issuing Member banks for the risk associated with the transaction.

*********

The site goes on the describe all of the other parties to a credit card transaction – the merchant bank, the front-end processor, the back-end processor, the gateway provider…

Everyone collects a fee, but the interchange fee (about 2% – I’d have to be at work to look at my statements to see the current Visa and MC interchange rates) goes to the card issuing bank.
[/quote]

My use of the word “processor” with respect to Visa and MC was lazy and incorrect. Also, while I knew that these fees were split between the issuer, merchant processor and credit card associations (the correct word, obviously), I gotta say that I didn’t realize how little went to the associations. I thought it was more like half of the total.

Having said that, assuming a 150 bps average interchange fee, after paying the association and the merchant processors (the companies that actually process the transactions), I’d bet there isn’t more than 100 bps left for the issuing bank (although that’s more than I would have thought). So, assuming a 20% average credit card rate, another 1% – while helpful – isn’t where the profit is.

But, clearly, I was wrong about the breakdown of how much of the interchange fee went to which party. Won’t be the last time…

Thanks for providing clarity on this issue. While I don’t work with banks that issue credit cards, I should know more about the basics of credit card transactions.

[davelj]

[quote=JustLurking]Actually Dave, I don’t think you have it quite right. MasterCard and Visa are not processors. My company is a merchant and this is an excerpt from our payment processor’s website:

Credit Card Processing Market Participants

Below is a brief list of the parties involved in processing a credit card transaction, the role each participant plays and the most common industry nomenclature for each party.

Visa® and MasterCard® Associations
Put simply, VISA and MasterCard are associations of banks whose primary purpose is to set rules and regulations for the acceptance of credit cards and protect the integrity of their brands and the credit card processing industry. VISA and MasterCard are also responsible for setting Interchange Rates.

Although Visa and MasterCard are responsible for setting the Interchange Rates, they do not receive a significant portion of these fees. Instead, for every transaction conducted with a Visa or MasterCard, they receive “Dues & Assessments”. Currently, Visa receives 0.0925% of the sale, and MasterCard receives 0.095% of the sale. It is also important to understand that companies such as American Express® and Discover® are not Card Associations. To accept these types of cards Merchants must have separate agreements with these companies.

Card Issuing Member Banks

Card Issuing Member Banks are members of MasterCard and Visa that issue credit and debit cards to their customers. Every time a Visa or MasterCard branded credit card is used, the member bank that issued that credit card earns the Interchange Fee associated with the transaction. This fee is designed to compensate Card Issuing Member banks for the risk associated with the transaction.

*********

The site goes on the describe all of the other parties to a credit card transaction – the merchant bank, the front-end processor, the back-end processor, the gateway provider…

Everyone collects a fee, but the interchange fee (about 2% – I’d have to be at work to look at my statements to see the current Visa and MC interchange rates) goes to the card issuing bank.
[/quote]

My use of the word “processor” with respect to Visa and MC was lazy and incorrect. Also, while I knew that these fees were split between the issuer, merchant processor and credit card associations (the correct word, obviously), I gotta say that I didn’t realize how little went to the associations. I thought it was more like half of the total.

Having said that, assuming a 150 bps average interchange fee, after paying the association and the merchant processors (the companies that actually process the transactions), I’d bet there isn’t more than 100 bps left for the issuing bank (although that’s more than I would have thought). So, assuming a 20% average credit card rate, another 1% – while helpful – isn’t where the profit is.

But, clearly, I was wrong about the breakdown of how much of the interchange fee went to which party. Won’t be the last time…

Thanks for providing clarity on this issue. While I don’t work with banks that issue credit cards, I should know more about the basics of credit card transactions.

[davelj]

[quote=JustLurking]Actually Dave, I don’t think you have it quite right. MasterCard and Visa are not processors. My company is a merchant and this is an excerpt from our payment processor’s website:

Credit Card Processing Market Participants

Below is a brief list of the parties involved in processing a credit card transaction, the role each participant plays and the most common industry nomenclature for each party.

Visa® and MasterCard® Associations
Put simply, VISA and MasterCard are associations of banks whose primary purpose is to set rules and regulations for the acceptance of credit cards and protect the integrity of their brands and the credit card processing industry. VISA and MasterCard are also responsible for setting Interchange Rates.

Although Visa and MasterCard are responsible for setting the Interchange Rates, they do not receive a significant portion of these fees. Instead, for every transaction conducted with a Visa or MasterCard, they receive “Dues & Assessments”. Currently, Visa receives 0.0925% of the sale, and MasterCard receives 0.095% of the sale. It is also important to understand that companies such as American Express® and Discover® are not Card Associations. To accept these types of cards Merchants must have separate agreements with these companies.

Card Issuing Member Banks

Card Issuing Member Banks are members of MasterCard and Visa that issue credit and debit cards to their customers. Every time a Visa or MasterCard branded credit card is used, the member bank that issued that credit card earns the Interchange Fee associated with the transaction. This fee is designed to compensate Card Issuing Member banks for the risk associated with the transaction.

*********

The site goes on the describe all of the other parties to a credit card transaction – the merchant bank, the front-end processor, the back-end processor, the gateway provider…

Everyone collects a fee, but the interchange fee (about 2% – I’d have to be at work to look at my statements to see the current Visa and MC interchange rates) goes to the card issuing bank.
[/quote]

My use of the word “processor” with respect to Visa and MC was lazy and incorrect. Also, while I knew that these fees were split between the issuer, merchant processor and credit card associations (the correct word, obviously), I gotta say that I didn’t realize how little went to the associations. I thought it was more like half of the total.

Having said that, assuming a 150 bps average interchange fee, after paying the association and the merchant processors (the companies that actually process the transactions), I’d bet there isn’t more than 100 bps left for the issuing bank (although that’s more than I would have thought). So, assuming a 20% average credit card rate, another 1% – while helpful – isn’t where the profit is.

But, clearly, I was wrong about the breakdown of how much of the interchange fee went to which party. Won’t be the last time…

Thanks for providing clarity on this issue. While I don’t work with banks that issue credit cards, I should know more about the basics of credit card transactions.

[Author]

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