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Do Decreasing Mortgage Rates affect your Return on Investment?

Updated: Feb 14

After making 11 interest rate hikes from early 2022 through mid-2023, the Federal Reserve decided to not raise short-term rates at its December 13 meeting. It’s the third meeting in a row the Fed has left rates unchanged, potentially signifying an end to rate increases that directly affect credit cards and adjustable-rate mortgages. Here’s what’s happened to the rate market since then:

  • Mortgage rates have recently dropped to their lowest levels since June after surpassing the 7% mark in August.

  • While the Federal Reserve does not directly set mortgage rates, how it manages the federal funds rate influences mortgage lenders and how much interest to charge on loans.

  • The federal funds rate and mortgage rates usually move in the same direction.

The current downward trend for rates is good for consumers who are looking to purchase a home or refinance an existing mortgage federal funds rate and mortgage rates usually move in the same direction.

Here's How It Affects Your Investments As interest rates decrease, you may be wondering whether it affects passive mortgage investments. Unlike traditional mortgages, the private money loans that we offer to borrowers and as an investment vehicle for capital investors are not directly affected by federal interest rate fluctuations. Interest rates for private money loans are generally higher but more stable than conventional mortgages. Rates are not ebbing and flowing with the ups and downs of interest rates like those for traditional mortgages. As a private lender, we control loan approval criteria and set the interest rates as we are not bound by conventional mortgage guidelines.

Private money loans tend to be short term, and each borrower and subject property undergo a thorough analysis that includes their financial background, ability to repay the loan and property expenses, market stability of the property, and a definitive exit strategy. This differs from the one-size-fits-all approach with conventional lending. There will always be a demand for private lending since it’s a go-to option for real estate investors and developers who need reliable, short-term financing. It allows borrowers to bypass the stringent guidelines and fluctuating rates of conventional lending. This helps maintain steady returns for our capital investors, making passive mortgage investments a proven strategy to build long-term wealth in a wide range of interest rate environments.

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