How the Dollar Affects Interest Rates and Home Loans

The dollar has fallen to an all time low, around the world. The dollar has struggled against the Euro for some time now, but is now at a record low against this currency. In addition, the economic troubles the US is facing have dropped the value of the dollar against many currencies which it is traditionally stronger than. What does the falling value of the American dollar mean to those looking for loans and mortgages?

For one thing, the falling value of the dollar will drive up interest rates on many loans. This has already been seen on many home mortgages for consumers with less than stellar credit. Their loan payments have ballooned upwards as the housing market has fallen to almost rock bottom. Even the economic incentive plan President Bush is proposing this summer may be too little, too late. The economic damage has been done; now consumers must simply wait and see if a recession is in offing.

The market for loans is as weak as the value of the dollar, as a result. Unless you are a consumer with perfect credit or substantial cash reserves for a down payment, many lenders will not extend a line of credit. The impact of this has led to the federal government instituting new regulations on lenders, particularly those in the housing market.

These new regulations force lenders to base their decision on the actual income of the loan applicant, rather than their credit rating. In a sense, this is actually a good thing for both sides. Another benefit, though indirect and much maligned, is the fact that the looming economic crisis in America may force consumers to rethink their spending habits. Many American consumers treat credit as though it were hard currency, banking on future earnings, rather than saving anything for themselves.

The falling value of the dollar is further exacerbating the housing market crunch, by driving housing prices back up, despite a weak market. This means that there is a very small window in which consumers can invest in property below market value, before those values are increased by inflation.

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