Low, Lower, Lowest: Mortgage Rates Keep Falling

How can a corporate CEO shifting money from one offshore account to another affect the interest rate on a mortgage in the US? Current mortgage interest rates are falling to record low levels, making it possible for struggling homeowners to refinance their loans at more manageable levels and opening doors to investors seeking to purchase income property.

These rates come in the midst of a modest housing recovery which has seen home prices stabilize, fewer houses going into foreclosure, and more new home starts. What’s behind these low rates, and what do they mean for those following Jason Hartman’s guidelines for purchasing rental income property?

In general, mortgage

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rates are influenced by a number of factors, both at home and abroad. Although conditions in the US economy as a whole might seem to be a major factor in influencing trends in mortgage rates, financial experts say that,

unless economic indicators take a significant leap upward, moderate economic growth may not make a significant impact on interest rates – at least not enough to drive them to the current lows.

Economists and financial experts look to other factors. In the aftermath of the housing crisis of a few years ago, which saw a record number of foreclosures and mortgage defaults, the Federal Reserve took several steps to bring mortgage interest down. One option was to purchase long-term securities and sell off short-term debts. Another involved taking on large numbers of foreclosed homes or those nearing foreclosure through the federal lending agencies Freddie Mac and Fannie Mae.

Conditions abroad also affect mortgage rates in some significant ways. Europe’s financial instability and worries about the fate of the euro come to mind. Economic conditions in individual countries such as Spain and Greece may also add to global

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instability and drive more investors to move money to safe havens in other areas.

This shift in funds from one market to another pushes down the yields on Treasure notes. Because the secondary mortgage market relies on yields from the 10-year Treasury note as a benchmark for setting 20-year fixed rate interest rates, factors affecting the status of these Treasury bills will then push interest rates up or down.

All these factors combine in the current economy to create conditions for record low interest rates as low as 3.10 percent for some fixed rate mortgages and even 2.5 percent for some ARMS. That’s good news for income property investors seeking to finance – or refinance– properties with a 30-year fixed rate mortgage. (Top image: Flickr | Gilberto Filho)

The American Monetary Association Team


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