Low Mortgage Rates – How Long Will They Last?

The trend for interest rates from 2020 to 2021 has been largely the same, with rates remaining quite low when compared to historical averages. The $64,000 question seems to be for how long will this trend endure? The answers to this question helps potential homebuyers or homeowners look at the pros and cons of either purchasing a new home or refinancing an existing home. Interest rates are the prime driver when it comes to mortgages, and just a 1-2% interest rate reduction can net a lot of money over the life of a loan.

The 3rd Quarter Housing Market

The third quarter of 2021 has seen a slight uptick in home inventories in some areas. An increase in inventory generally means that the market is cooling, albeit just a little. Home prices are still up and the volume of homes sold remains elevated. There is a lot of activity still ongoing, and prices continue to be pushed up as a result of this.

Rates themselves began heading up around Spring, but have since retreated south over the late summer period. Even if you consider the rates around April, they’re still quite low, relatively speaking. While you might not land the lowest rates of the year, rates are not much higher than they were at the lowest points of the year.

And that translates into being worth it if the interest rate on your current mortgage is higher. Even going back 2-3 years ago yields interest rates a good bit higher than they were now. It makes a lot of sense for homeowners to look at a refinance. It can also make a lot of sense to purchase a new home if a job or growing family, among other causes, contributes to the need for a new space. In many cases, the lower interest rates can make an elevated home price still work for your budget.

Inputs for Mortgage Rates

Mortgage rates are not set by a central rate agency or any other government agency. Instead, mortgage rates are based on a number of factors. These factors include, but are not limited to:

  • Housing Supply & Demand
  • Treasury Bond Rates
  • Inflation
  • Overall Economic Health
  • Unemployment Rates

When the economy is performing well, which is typically marked by low unemployment rates, rates will tend to rise. This is a result of an increase in demand, as more people having employment yields more people with money to search for homes. Rates will decline in periods of economic trouble, as they’ll often need to be lower to attract potential borrowers.

Monetary policy set by the Federal Reserve also has a large impact on mortgage rates. The Federal Reserve can raise or lower the federal funds rate, which is the interest rate at which the Fed and other institutions can lend money to one another. An increase will result in a higher mortgage rate, as the lender has to make a profit, while a decrease will lower interest rates. Be advised, however, that there is not a one-to-one correlation between the fed funds rate and mortgage interest rates. The Federal Reserve can also buy other securities and help drive mortgage rates lower.

So Where Are Mortgage Interest Rates Going?

The real answer is that no one knows for certain as to where interest rates are going. COVID-19 has resulted in a unique shock to the economy, and the effects of the virus continue to play out. It’s impossible to predict if interest rates will be pushed higher in the next few months, let alone years. However, there is good reason to think that the economy will continue to recover and that the virus may recede into the background. There is also a case that the ongoing variants of the viruses, combined with other economic details, continues the current trend of low rates when faced with economic uncertainty..

While you don’t want interest rates to be the only reason to go out and purchase a new home, low rates make sense when combined with other factors like simply needing more space or being required to move to a new town to follow a job. Similarly, if refinancing makes good economic and budgetary sense for you, then now is the time. No one precisely knows how long the low rates will last.
If you are unsure about refinancing your existing mortgage or undecided about qualifying for a mortgage on a new home, then we invite you to speak with one of our mortgage experts here at Range Lending. We seek to help our clients into a better economic future by finding the right loan for each financial situation. Talk to us today for a free quote to help you make an informed decision about your next mortgage move!

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