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Mortgage And Deposit Rates Go Their Separate Ways

That difference is relevant to the current environment. The resolution of the fiscal cliff crisis led to a general feeling that conditions were starting to fall into place that would allow the economy to improve, but current economic data does not yet show that improvement.

The risk to the banking system

There is another element at work here, and that is the inherent risk of lending money at low rates for 30 years. Current mortgage rates are lower than even short-term rates have typically been in the past, and about at the historical level of inflation. If things return to normal at some point over the next 30 years, mortgage lenders would find themselves stuck with a whole generation of unprofitable loans.

The recent rise in mortgage rates, therefore, might be a recognition of the risk of making long-term loans at overly low rates. While it might seem that consumers are getting the worst of both worlds -- loan rates rising while deposit rates remain low -- ultimately a rise in mortgage rates could benefit everyone by taking some risk out of the banking system.

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