Alexander Hamilton started the U. S. Treasury with nothing—and that was the closest our country has ever been to being even. –Will Rogers
Bond-holders know that when interest rates go down, the value of an 8% bond or mortgage goes up. If a mortgage could not be prepaid (it can), then the “value” of an 8% 30 year, $100,000 mortgage is--
Rate ---Value
4.5%----$144k
6%------$122k
7%..........$110k
8%------$100k
The fact that mortgages can be prepaid, means that the value of an 8% mortgage is not 144% in a 4.5% market. But it is above par.
If the value of the mortgage goes up, doesn’t the value of the home have to go up also? That's what Sinatra thought, "You can't have one without the other."
Today many home-owners are under-water—the mortgage is bigger than the value of the home. If the home-owner gets a lower interest rate on his home is he recapturing some of that lost value?
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