For reference, an interest rate is the amount of interest due over the term of a loan as a percentage of the principal, or the amount borrowed. The interest rate on a loan is the cost of borrowing the principal of the loan.
Even though interest rates fluctuate often, they have been remarkably low over the past year; this is largely due to the COVID-19 pandemic. The Federal Reserve lowers interest rates in order to stimulate growth during a period of economic decline and uncertainty, which means that borrowing costs become cheaper. They are great for homeowners as it reduces their monthly mortgage payments, and good for the economy as it sparks more spending overall.
With the current low rate environment and state of the post-Covid economy, interest rates are likely to remain relatively low for many years to come. There is no inclination from the Federal Reserve to increase rates substantially as lower rates will support economic activity for the foreseeable future. Wall Street and Main Street do not want higher interest rates, nor is there any political will to challenge this….atleast anytime soon.
While economists cannot predict a crisis of this magnitude, they can advise governments how to calibrate the macroeconomic indicators for a steady recovery. The Federal Reserve has openly pledged to support the economic recovery and is signaling to hold the effective Fed Funds rate near zero until 2023.
The last time the Fed lifted the interest rates after holding them near zero for seven years was in 2015 – this was following the Great Recession of 2008. To sum it up, it appears that homebuyers will have access to low mortgage rates for years to come – perhaps not as low as they are now in the 2.00% range, but very low from a historical perspective.
If you have any questions about interest rates and how they affect you, please feel free to give us a call at (760) 930-0569 and one of our loan officers will assist you.