As of January 2021, U.S. long-term mortgage rates are still continuing to plummet to record lows. It's common to see a 2.65-2.67% interest rate on 30-year fixed-rate mortgages, whereas 15-year same-rate mortgages are nearing the high 1% mark. As mortgage rates stay incredibly affordable, more and more people are wondering if this trend will continue.
While the set mortgage rate will stay the same, many aspects determine your personal rate. Your credit score, home location, home price, down payment, loan term, interest rate type, and loan type can change how much you pay per month significantly and increase or reduce the interest rate attached to your home.
It's still more important than ever to check and compare the rates available when applying for a mortgage. Don't just rely on the national mortgage rate because some brokers may charge you more than necessary. Only apply for a loan that won't create financial difficulty overtime.
While inflation isn't the primary reason for the recent downturn in mortgage rates, it's still an essential factor that will affect how your home acquires interest. Inflation is the erosion of the dollar's purchasing power, which is directly tied to the economy and other countries. Due to the poor economy and stagnant minimum wage, homes are skyrocketing in price and are becoming out of reach for most Americans until the bubble burst due to COVID-19.
Certain economic growth indicators, like employment rate and gross domestic product, indicate if a country is thriving. High economic growth usually produces higher incomes and more consumer spending, which will increase mortgage rates exponentially. However, the recent economic downturn created a weakening economy and a decreased demand for home loans.
To avoid the collapse of the real estate industry, mortgage lenders feel an increased pressure to lower the interest rates on loans to encourage people to purchase mortgages. The process of issuing loans is a business in itself because institutions make money from interest rates. Without their customer base, it's possible their business could collapse
The Federal Reserve is the most critical factor influencing interest rates and the economy. While it's true that the Federal Reserve doesn't set a specific interest rate for loans in the mortgage markets, they do have control over adjusting the money supply. When Fed Funds start to head downwards, it creates a significant impact on the borrowing public.
Coronavirus fears caused the Federal Reserve to buy more mortgage-back bonds to keep the market steady and, at the same time, prompted them to issue mortgage bailouts for borrowers during this financial crisis. The uncertainty makes lenders nervous and leads to more spending to keep an institution afloat until the economic downturn passes.
Investment firms and banks market mortgage-backed investment products to consumers. The gains from these debt securities have to remain high to attract buyers interested in long-term fixed-income investments. The money earned on these investment products affects how much lenders charge for mortgages. A commonly used benchmark for this product is the 10-year Treasury.
Investors started bailing out of bonds because their yield was slim to none, so lenders need to keep rates low to keep attracting buyers. Mortgage-backed bond investors are mostly interested in a long-term investment and may stay clear of bonds regardless due to the diminishing yields and rumored additional interest rate plummet.
Conditions and trends in the housing markets will affect mortgage rates. Due to the recession and job losses, fewer homes are being built or put on sale, which leads to a decline in mortgages and pressures interest rates to remain low. Interest rates were low before COVID-19 due to the increase of consumers opting to rent instead of buy, but now, only the wealthiest investors even dare purchase a home priced $1 million or more.