Interest Rates are Crazy Low!

Last week the average rate on a 30 year fixed rate mortgage was 4.84%, according to Freddie Mac, hitting as low as 4.61% on Tuesday afternoon.

How do these rates compare? Well, historically speaking, that is crazy low! Until 2003 rates had not gone below 5% since the 1960s. The current rates are at the lowest level of the year and back near 50-year lows.

But haven't rates been that low throughout much of the last year? Yes, but when the Federal Reserve stopped buying mortgage backed securities it was assumed that rates would rise.

So, why are rates dropping instead of rising as expected? Most economists believe that rates are falling due to the European debt crisis, which pushed a large amount of cash from overseas investors into US bonds. And mortgage rates are linked to US Treasury Bond yields.

How does this affect me? If you are thinking about buying, low interest rates make homes more affordable. And these low rates will also help those who refinance. By refinancing into a lower rate mortgage, you are decreasing your payment and putting more cash into your hands to spend on other things. This also boosts the overall economy because when consumers spend less on their mortgages and have more disposable income, they will funnel more money into the economy via consumer spending.

Source: Wall Street Journal, Reuters