REAL ESTATE MORTGAGES

This research examines real estate mortgages. The issues of interest with respect to real estate mortgages are interest rates and the advantages and disadvantages of alternative interest rate structures. The findings of this research are presented in discussions related to real estate mortgages for commercial properties and real estate mortgages for home buyers.

Real Estate Mortgages For Commercial Properties

The focus in the examination of real estate mortgages for commercial properties is interest rate levels. Interest rate movements and averages for the June 1993-May 1994 are examined first. Interest rate projections for the June 1994-May 2003 are then considered.

Interest Rate Movements and Averages

Interest rate movements for real estate mortgages for commercial properties are presented in Chart 1, which may be found on the following page. As the data presented in the chart indicate, mortgage interest rates for commercial properties fell through the end of 1993. A slight rate increase was experienced in January 1994; however, interest rates fell again in February 1994. Since February, mortgage interest rates for commercial properties have risen steadily and substantially each month. Average mortgage interest rates over the 12-month period June 1993-May 1994 were 6.92 percent for 30-year mortgages, 6.88 percent for 15-year mortgages, and 6.65 percent for 10-year mortgages.

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e liquidity of the credit markets. The level of corporate debt, the level of personal debt, and the level of government debt in the United States has created a demand for credit that has been satisfied only by the massive inflow of foreign capital. A lower-valued dollar makes it less likely not only that foreign capital will continue to flow into the American economy, but that the foreign capital already in the United States will remain. If the foreign capital flow stops or slows substantially, all interest rates, including commercial mortgage interest rates, will rise dramatically. To support the dollar in international currency markets, the Federal Reserve will be required to raise interest rates--probably substantially over the coming 10 years. Thus, whatever scenario is followed with respect to the international valuation of the dollar, an increase in all interest rates, including commercial mortgage interest rates, may be anticipated during the June 1994-May 2003 period. The real issue will be the extent to which real commercial mortgage interest rates rise. The rise in real commercial mortgage interest rates will likely be less than the increase in nominal rates; however, the rise in real interest ra

Category: Economics - R