The party isn’t over for homeowners looking for refinancing money and home buyers hoping for cheap mortgages. But the Federal Reserve may have just announced the final call.
On Wednesday, the Fed released projections that show its policymakers expect to hike rates twice in 2023. As recently as three months ago, in March, officials said interest rates would remain at their current historically low levels until at least 2024.
The US Federal Reserve says the country’s economic outlook is improving, largely due to the vaccines that have slowed the spread of COVID-19.
“Amid this progress and strong political support, activity and employment indicators have improved,” the Fed said in a statement.
However, if the Fed aims to hike rates sooner, borrowers may be running out of time to take advantage of today’s historically low mortgage rates.
Fed sees encouraging signals for the US economy
The Fed cut its key interest rate – the so-called federal funds rate – to around 0% when the pandemic hit the economy for the first time in March last year.
Federal Reserve Chairman Jerome Powell said policymakers would not feel comfortable hike the interest rate until the US hits “full employment” and healthy inflation levels that do not affect consumer spending.
The Fed has set itself an inflation target of 2% and wants this level to be exceeded “for some time”. Maximum employment is a bit of a nebulous idea, but new economic forecasts released by the central bank predict an average unemployment rate of 4.5% this year. This is not exactly the lowest point.
“Lift-off is far in the future,” Powell said during a press conference on Wednesday. “For example, we are very far from maximum employment, that is a consideration for the future.”
The Fed predicts inflation will average 3.4% in 2021, but the chairman warns that it “could be higher and more persistent than we expect”.
Powell and his colleagues expect inflation to fall to 2.1% next year and rise slightly to 2.2% in 2023 – which would provide exactly the kind of evidence the Fed needs to begin the rate hike.
The impact on mortgage rates
The Fed has no direct impact on long-term mortgage rates, but the almost no federal funds rate has fueled a low-interest environment that has contributed to today’s dirt-cheap home loan costs.
Mortgage rates were also influenced by another Fed strategy. The central bank on Wednesday reiterated its pledge to buy $ 80 billion a month in government bonds, which has helped keep government bond interest rates or yields low.
“These asset purchases contribute to the smooth functioning of the market and accommodative financial conditions, thus supporting the flow of credit to households and businesses,” says the Fed.
Mortgage rates exactly follow the yield on 10-year Treasury bills, which skyrocketed in late March but has continued to decline since then. 30-year mortgage rates this week are the lowest since mid-February, averaging just 2.93%, according to mortgage giant Freddie Mac.
As soon as the Fed begins to reduce its bond purchases and raise the key rate, mortgage rates will feel the pressure.
“Rates were up half a percent in ten days in March, so they’re very fluid,” said Corey Burr, senior vice president at TTR Sotheby’s Realty in Washington, DC. “When the economy fully recovers from the pandemic, they will undoubtedly increase this, increase this.”
Get a low mortgage rate while you can
With the economic recovery from COVID-19 strong enough to force the Fed to adjust its recovery schedules, it likely won’t be long before the low interest rate phase for home buyers and homeowners is replaced by a new reality of higher borrowing costs.
When you may be in the home loan market soon, start shopping. With rates below 3%, mortgage technology and data provider Black Knight says there are 14.1 million homeowners who could save an average of $ 287 per month on refinancing.
Whether you’re buying a home or getting a refinance, a strong credit rating will help you get a low mortgage rate. So check your creditworthiness. It is very easy today to check your credit score for free. If your credit needs a little TLC, now is your time to get it in shape.
When it comes time to find a lender, never go with the first one you come across – even if you are promised “the lowest interest rates”. Maybe you can do better. Comparing at least five loan offers will help you find what is Really the best mortgage rate for your region and your unique financial situation.
To lower your overall home ownership costs, consider making some comparative purchases for your homeowners insurance as well. A few minutes spent collecting price quotes could save you hundreds of dollars a year.
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