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Sunday, June 25, 2006

Taiwan’s Mortgage and Interest Rate

As the central bank of Taiwan raised the interest rate, most rate of index-rate mortgage will follow the rising move. Thus we need learn how to forecast the future interest rate. Current discount rate set by central bank of Taiwan is 2.375%. And the mortgage rate of government sponsored home purchasing is 2.98%. (2.375%+1%-0.125%) If central bank of Taiwan raise the rate 0.125% four times in the coming year, the mortgage rate will rise to about 3.5%. If the interest rate is raised continually for two years, it will become around 4%. If anyone applies for a fixed rate mortgage at 3.5% now, then he will be still paying at the fixed loan rate of 3.5% two years later. Fixed rate mortgage is better than applying a government sponsored mortgage now, and get raised to 4% in the future. Especially for people applying for mortgage of 20 years or even longer, now it is a good time to use fixed rate mortgage.

You can see a lot of banks offering long years’ fixed interest rate mortgage now. Insurance company in Taiwan provides most of long term fixed rate loans. Some offers 20 years to 30 years fixed interest rate mortgage for their customers. We should also be aware of the possibility that anther interest rate declining cycle might begin in 5 to 10 years. Fixed rate mortgage will become unfavorable again when rate start to decline. But considering that you might be able to refinance to a index rate mortgage in the future, it is still a better idea to apply for fixed rate loan nowadays. The current fixed rate of loan, 3.5%, is even lower than the estimated return rate of some Real Estate Investment Trust. From the past five year’s interest rate history, we can conclude that now is not the highest point of interest rate.

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