2020 has brought a lot of change to our world. The global pandemic altered day-to-day life dramatically and required us to make many changes to our plans. The mortgage industry has seen a lot of change this year, as well. Mortgage interest rates have been at historic lows week after week. If you’re wondering what these low rates actually mean for you, keep reading for insight from our Executive Vice President of Capital Markets, Jason Baker.

What Do Low Interest Rates Mean for Me?

For potential homeowners, lower rates mean that you will not only have a lower monthly payment but will also be able to afford a bigger house because of the increase in buying power. In addition, with a lower rate the amount of the mortgage payment going toward paying the interest is less; conversely, more of the payment is applied to the principal. For example, in September 2018, a 30-year fixed rate mortgage was around 4.500% with a monthly payment of $1,267; that same mortgage is now around 2.875% with a monthly payment of $1,037 – that’s a savings of $230 per month.

What Long Term Problems Will Come from Rates Being So Low for So Long?

The Federal Reserve is taking a bet that by keeping rates low for a longer period of time than normal, the United States economy can avoid a situation like Japan has been in for the past thirty-one years. 1991 to 2001 is known as “The Lost Decade” in Japan among economists due to the country not being able to get out of an economic slowdown. The risk for the United States is that the Fed will not be able to contain inflation once our economy rebounds.

What Should I Know About Rates/Fees Associated with Refinancing Right Now?

If a person took out a mortgage before March 2020, he/she most likely can refinance and save a lot of money. A breakeven analysis will tell whether or not the current rate and fees justify the refinance. Borrowers can head here to calculate the breakeven cost. The goal is to validate that by refinancing, one comes out ahead in the transaction by saving money over the current situation.

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