Mortgage rates are expected to stay low for some time

If you’re planning on borrowing soon, that’s great news.

Mortgage interest rates have hit record highs several times in recent months, making this the perfect time to get a home loan. Of course, you can’t borrow to buy a home just because the rates are low – you have to be prepared to buy a home first. This could be a problem for some people, especially as home values ​​in many parts of the country are reaching record highs as well.

But there is good news for those who aren’t quite ready to start buying property. You don’t have to rush to find a home and apply for a home loan just to get an unbeatable deal on a mortgage. It is very likely that mortgage rates will remain low for years to come.

Here’s why mortgage rates likely won’t go up anytime soon

Recent Federal Reserve policy statements held great news for would-be homeowners who were hoping mortgage rates would stay near their current lows.

The Federal Open Market Committee (FOMC), one of the committees of the Federal Reserve, which is the country’s central bank, met in late January. Following the meeting, the FOMC announced that it would leave its current economic policies in place for the foreseeable future. These policies largely paved the way for the dramatic drop in mortgage rates.

The FOMC’s announcement means, among other things, that the Federal Reserve will continue to buy assets, including mortgage bonds. The Fed’s mortgage purchases improved liquidity and thus made mortgage lenders more willing to extend credit. The Fed essentially stimulates demand for mortgage debt in the secondary market. This has been a key factor in keeping interest rates competitive.

After the FOMC meeting, the central bank made it clear that it would not change its monthly bond purchases of $ 120 billion until there was “further substantial progress” on economic recovery. And, unfortunately, they don’t believe it will happen anytime soon. According to the updated FOMC policy statement, “the pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors hardest hit by the pandemic.” .

Interest rates remain low

The Federal Reserve has not announced a date on which it would back down on bond purchases. And the Fed chairman also confirmed the plan to keep interest rates low for the foreseeable future.

The overnight rate set by the Federal Reserve has no direct impact on mortgage rates (which tend to more closely mirror 10-year Treasury rates). However, this can still indirectly affect the cost of a mortgage. When the Fed cuts rates, for example, there may be more interest in 10-year Treasury yields. Indeed, rate cuts can portend economic problems and Treasury yields are considered a safe investment. The Federal Reserve’s position on interest rates is also a strong indicator of its overall economic policy.

The Fed says it will monitor the progress of vaccinations before changing its current economic position. As such, it is clear that he believes the recovery is directly linked to full control of the pandemic – which, unfortunately, will likely take time.

As long as the central bank maintains the status quo, the low cost at which banks can borrow from each other, coupled with exaggerated competition for bond purchases, should continue to keep downward pressure on mortgage rates. It is a recipe for low rates for years to come.

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