Mortgage Rates Lowest Since 1950
You’ve seen several posts here recently discussing how low mortgage rates are, but a report from the popular financial website bankrate.com today revealed that the last time mortgage rates were this low was in 1956! The average rate on a 30 year fixed mortgage now sits at 5.19%, and many borrowers are finding programs with rates below 5% if they can make it through the thorough approval process.
Even more surprising than the low rates is how quickly those rates have fallen. Just 5 months ago, the average rate on a 30 year fixed mortgage was 6.77% according to the website. The difference of more than 1.5% in such a short period of time translates into a monthly savings of over $200 on a mortgage balance of $200,000.
What’s making interest rates fall? The main catalyst for the lower rates is the way that the government is handling the economic meltdown we’ve seen transpire over the past several months. Just recently, the government announced that they will spend over a trillion dollars buying existing debt to ensure that banks and other lenders have ample liquidity to resume or increase lending business.
Most experts believe that we have seen the bulk of the drop in rates that we should expect to see, and that mortgage rates will now hover around these levels for the next several months. Mortgage rates tend to move in the same direction as Treasury Bond yields, and while those yields have come down significantly over the past few months, demand for government bonds should decrease as the economy strengthens, which will cause interest rates to either stay constant or increase slightly.
The low rates are prompting a great deal of refinancing activity, but so far they have not led to a big increase in new home purchases. As the economy strengthens, however, and home sales begin to rise, these low rates should be a nice incentive to get buyers off the sidelines and into the real estate market.
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