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US Mortgage Rates and COVID-19

US Mortgage Rates just hit a drastic low; what does this mean for the economy?


A mortgage interest rate is the cost incurred relative to the amount borrowed, in order to finance an individual’s property. Mortgage interest rates are mainly dependent on a variety of factors, including macroeconomic trends and larger investment activity. Banks and lenders generally offer two types of loans; these being a fixed interest rate or an adjustable interest rate, which generally changes according to the current level of inflation or other factors. Generally, when mortgage rates increase it is an indicator of the stock market and foreign markets doing well, an increased level of inflation, or a decrease in the level of unemployment. Currently, US mortgage rates have experienced a drastic low. When mortgage rates decrease, this implies there is a larger trend of a recession or economic downturn. This is because mortgage rates generally decrease when there is a dip in the stock market, a decrease in inflation,  or an increase in unemployment.

The world is currently experiencing a pandemic, due to the novel coronavirus. The 30-year fixed rate mortgage has dipped to its lowest level since 1971; this has been occurring since March and is the sixth notable low since then. These particularly low rates are due to the decrease in investment since the pandemic. Since then, the Federal Reserve has decreased its interest rate and bought bonds in an attempt to stimulate the economy. However, these particularly low rates have caused demand to increase in the property market in the past few weeks. This surge in demand may only be temporary, however, as coronavirus cases continue to rise and states halt reopening procedures in order to address safety concerns.

 Forbes Magazine recently published an article online named, “With Mortgage Rates so Low, Is Now the Time to Refinance?”. The article points out that if you sought your mortgage in previous years, now may be a good time to refinance considering the lower interest rates. They also urge the reader to consider a number of factors before proceeding, including, when payments started as payments in their beginning period tend to focus on interest rates, as opposed to the principal loan. Closing costs are also an important factor when refinancing, as well as taxes and cash flow. Provided these considerations are made, the extremely low mortgage rates of today could be beneficial for a homeowners future (Image via Forbes).



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