Coronavirus has badly hit the global economy. One of the sectors which have received a considerable blow is mortgage. Its rates have dipped to record all-time low levels and may move even lower if the pandemic shutdown continues.
Mortgage rates underwent a significant difference in the year 2008 when the world’s first wave of the global recession hit, but the graph was not as low as this year. From a 4.07% rate, it has dipped to 3.23%. What may be shocking, though, is that the Federal Reserve plans to keep the interest rates at 0 percent.
TRIGGERS BEHIND THE DIP IN MORTGAGE RATES
FEDERAL RESERVE’S BOND-BUYING POLICY
Federal Reserve officials usually try to buy government as well as mortgage-backed bonds aggressively. They keep the interest rates near zero in difficult times to stimulate and stabilize the economy. They have taken such steps in the past as well, and this is currently being done as well.
PRICE INFLATION AND SUPPLY-DEMAND CHAIN IN THE MARKET
The need for homes being put up for sale and mortgage is lower these days. Therefore suppliers or lenders have lower down the interest rates. The same is the effect of price inflation over the loan rates.
HARMONY WITH 10-YEAR TREASURY
Mortgage rates usually run with the 10-year treasury. Federal Reserve institutions do not have any direct influence over the yields. However, there are conditions when investors get pushed towards the safety of 10-year treasuries. This happens due to the cutting down of the federal funds rate. The result is lower mortgage rates.
POINTS TO REMEMBER WHILE OPTING FOR A LOWER MORTGAGE RATE
ACCESSIBILITY OF LOWEST MORTGAGE RATES
Although the Federal Reserve has announced a zero percent interest, it is not accessible by a more significant section. The borrowers with higher credit scores have better chances of locking in the lowest mortgage rates, but they too won’t be able to bag zero interest rates. Based on the Federal Reserve’s policy, people with lower credit scores have ample time to raise their scores.
Even if you feel stuck in today’s challenging time, you must still find a lender you can trust. It is advisable to approach them again if you already hold a relationship with them through business in the past or if he is a friend, family, relative, or co-worker. You shouldn’t look for your benefit only. Relationships matter too.
The decrement in interest rates and steps taken by the Federal Reserve are beneficial for homeowners. Consequently, they are likely to have more time to lock in a low mortgage rate. However, as soon as the pandemic is over, the businesses will be back to normal. Then the lenders are expected to come back in the market, and the interest rates too are expected to rise.