Rates are improving today, however I believe the 30 yr fixed rates will be rising for the rest of the year and here is the reason why.
The Federal Reserve (Fed) is buying mortgage back securities and the Government is selling Treasury notes to raise money. There are not enough investors with cash to buy all the debt so both will have to raise rates to attract second and third tier investors to bring money to the table. OR the Treasury will print more money…driving inflation up.
When the Federal Reserve met yesterday they indicated that deflation was no longer a major concern (hint…in the future inflation is their main worry). Core inflation is currently at 1.8%, below the Fed’s upper target level of 2.0% so the discount rate remains at zero to .25%. So short term rates or Prime is at 3.25% (always 3% higher than the discount rate). Any hint of inflation will drive up long term rates.
Also the Federal Reserve will not increase the amount of money they are directing towards buying mortgage backed securities for the rest of this year. Total purchases so far this year is $570B out of $1,250B or 46% of the total.
Most people do not realize that you can earn unlimited amounts of money into these accounts each year either tax free or tax deferred…that is the key! That is where self directed IRAs, Roth IRA and 401ks come into play.
They can provide either funding for a 2nd mortgage loan on any property that will earn higher rates of interest back into your IRA
or provide funding for the full purchase price of an investment property that you receive rents from into your IRA.
Here is an overview of the main issues.
If real estate is involved you may NOT receive personal use or gain from that asset other than the interest or income returned to your IRA.
You cannot borrow money from your own IRA or 401k. If you borrow money from someone else’s IRA, say for a 2nd mortgage for you, that person cannot be related to you and the interest rate cannot be at a below market rate. There can be no self dealing.
You must use a qualified trustee or custodian to hold the IRA asset (mortgage note or property) on behalf of you the IRA owner. There are ways you can use an LLC to help in this, but you must do more research.
You can find out more about self directed IRAs by going to www.Trustetc.com.
You should also seek professional advice for both legal and tax purposes when using a self-directed IRA or 401k since every situation is different.
