Most borrowers are very well aware of the stock and bond markets. In fact, most people have a relatively fixed number of investment opportunities available to them. These include keeping their money in cash, buying property, buying bonds, or buying stocks. Currently anyone keeping their money in cash (in the bank, for example, in a savings account) knows that the interest that they are earning is very little – probably near 0%. But it is safe, up to the insured FDIC limits. Of course, no one knows what the stock markets are going to do over the next year, or the next ten years. But currently, if a person was to purchase the 30 stocks that make up the Dow Jones index, the dividend yield on the Dow is approximately 3%. If one were to buy a 10-yr Treasury Note, it pays an interest rate of about 3.00%. Therefore the dividend yield is about the same as the current yield on the benchmark U.S. Treasury note. Of course, both go up and down on a daily basis.
But let’s say that one could earn more money in dividends than on the 10-yr Treasury note. What this means is that if the Dow’s stocks, and their dividends, go absolutely nowhere over the next 10 years, and no dividends are cut, they will still outperform Treasury notes. Which doesn’t necessarily make either asset class a good investment: it’s entirely possible that both stocks and bonds are going to go down rather than up over the next decade. So with questions in the stock and bond markets, and cash earning very little, many are returning to examining real estate as a very viable investment. Given what their cash in the bank is owning, borrowers are placing an increased number of calls to lenders and are taking a new look at primary residences, 2nd homes, or investment properties. Given how low mortgage rates are, it is certainly an option worth discussing with any of our highly trained staff.
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