Interest rates (was Re:Where can I buy a linux-friendly laptop?)

[Evan Leibovitch]

Paul King wrote:

>Usually, a shorter payment plan ought to attract the lowest interest rate. Am I right, or am I missing something?
>  
>
You've clearly never shopped for a mortgage. :-)

The setting of loan/lease rates is part of a guessing game played by 
financial institutions, based on whether they predict that rates will go 
up or down during the term of the loan. This leads to some interesting 
"sweet spots" that are often neither the longest nor the shortest term. 
The rates can vary from month to month and from one lender to the next. 
Their goal is to lock you in long enough to extract the maximum total 
interest, yet not lock you in at a rate that's too much lower or higher 
than rates might get during the term of your payment.

Here's an example of one set of rates that I found this morning from 
capitaldirect.ca :

6 months: 4.65%
1 year: 4.4%
2 years: 4.5%
3 years: 4.4%
4 years: 4.7%
5 years: 4.8%
10 years: 5.34%

Why is the two-year rate higher than either the one-year or three-year 
rates? That's the work of people in the financial district using very 
complex macros on their spreadsheets, who go into a frenzy every time 
Alan Greenspan farts. Or maybe they just have a very elaborate dartboard.

- Evan
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