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Rate Compression in Private Money

December 11, 2018

Conventional mortgage rates are generally determined by a number of factors such as the federal reserve’s rate policy and the secondary market. In the current environment of rising interest rates, while interest rates are generally low, conventional lender’s rates change daily in small amounts. The final rate is dependent on when the rate is “locked in” by the lender putting the loan together.

 In private money, I often get asked the question, “are your rates rising along with the rest of the market?” In short, my answer is, no.

Private money loan rates are often determined by the amount of money in the market and the number of “lenders” that are trying to place that money. Recently, the economy has been steadily rising which means more money is coming into the space. When that happens, private money rates tend to decrease since there is more money looking to fund trust deeds. In the end, it really boils down to supply and demand.

Rates seem to have leveled out recently so we’ll have to see where they go. Always feel free to reach out with any questions regarding private money lending or investing. 

By: Jeff LaMotte
Vice President
Val-Chris Investments