With interest rates still hovering at or near record lows, many of our customers are asking two simple questions, why and how? To understand why interest rates are low, we first need to examine how interest rates are set. In the U.S., mortgage rates are typically based on the supply and demand for bonds and mortgage backed securities – both of which are typically thought of as stable investments that offer low risk. Normally when the stock market takes a major hit, or shows signs of volatility, the bond market becomes stronger. Mortgage interest rates typically go down as the bond market improves. This generally affects only fixed rate mortgages which are the primary tool by which buyers purchase homes in the US.
What this all means for you in West MI: If you are selling your home, lower rates mean that there is a bigger pool of qualified buyers who may now be able to afford ‘more home’ on the same income. Blacknight, a mortgage data and analytics provider, estimates that a 1% drop in interest rates increases the amount of eligible mortgage borrowers in the U.S. by 1.7 million people. Additionally, it is estimated that over 13 million current homeowners can lower their current monthly payment by refinancing – with an average savings of $277/month. Lately the bond market is not benefiting when the stock market goes down. As many investors convert to cash or sit on the sidelines, rather to the safety of bonds and treasuries. In good news, the fed is stepping in to buy these bonds and treasuries. This helps to keep interest rates lower for home buyers.
Although the market currently is experiencing an unprecedented level of volatility and we don’t know where interest rates will go – the below numbers represent how a borrower’s payment could change, should they save a percent on their interest rate.
When it comes to how changes in interest rates might affect your monthly payment, consider the below chart:
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