If you turn on the TV or radio, you cannot help but hear about the interest rates being at or near historic lows. Instead of being long winded and boring, I will briefly outline –in simple English– why this is the case and what it means for you.
Mortgage rates are mostly determined by the price that the Mortgage Backed Securities (bonds securitized by mortgages collateralized with real property) fetch in the open market. Without getting deep into explanation on Brexit, (or secondary bond markets in its simplest explanation) interest rates go down when there is a flight to quality as a protection for investors. In other words, if the stock market is going down, people typically sell stocks and move their money into the bond market by buying bonds. If a country’s economy is doing poorly, investors pull money from one place and put it into less risky places with lower but more predictable returns. Because bonds return a set amount, they are attractive when there is uncertainty. And there is an uncertainty in some parts of the world right now. But don’t worry, everything will be fine! When there is a flight to quality, people generally buy bonds. This causes the price to increase and the effective yield or interest rate goes down. That means that rates become lower.
So now that you have an overview of why rates go down, here is why that is important to you. Low rates translate into cheaper money.
- If you have a mortgage, now is the perfect time to see if you can refinance your loan with a better rate to lower your payment.
- If you are looking to do some home improvement, now is the time to see if you can pull equity from your home to put it right back in through the improvements.
- If you are thinking about buying a home, now is a great time, because the cost of the money is so low.
All in all, if you have a mortgage or are thinking of getting one, the best thing you can do is call one of the experts here at Morgan Financial to see if we can assist you in your quest for cheap money. Call us today so we can assist!
