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Interest Rates Defy Predictions: How Low Can They Go?

A few months ago, the experts agreed: mortgage loan interest rates could not stay so low – they were going to rise. At first the predictions were for sharp increases, then they were adjusted to smaller bumps. But as of mid-April, the market continues to defy those predictions: rates for home mortgage loans are at the lowest point over the last three years, and near the lowest in history.

When the Federal Funds Rate was raised in December 2015, economists predicted that there would be as many as four more increases in 2016, but there hasn’t been one since. Now investment analysts have lowered expectations to one or possibly two in 2016.

Many factors influence these low rates, but one interesting one has to do with other countries’ economies. When things are shaky in economies around the world – as has happened over the last few years – investors there look for “safe haven” products to put their money into. Well, U.S. mortgage bonds are among the safest investments in the world today, so they’re doing brisk business – and the high demand for them helps keep rates down.

But of course, here’s the bottom-line question: What does this mean for homeowners and people thinking about buying? Well, here are some thoughts:

  • The news is indisputably good: Buying power and the incentive to refinance are even stronger than at the end of 2015, when people felt like they were taking advantage of the best scenario they were going to see. Just since the first of the year, the lower rates give you the equivalent of 4 percent more buying power – meaning for the same mortgage payment you can get a $416,000 home instead of a $400,000 one, for example.
  • So, if you’re considering buying a home or refinancing your existing home, this is an excellent time.
  • Of course, trying to outguess the market is a dicey proposition. And if you’re worried that this isn’t the bottom-bottom? Well, look at it this way: Suppose you bought a stock at $20 and then sold it when it reached $40, thinking that was the peak. Then the stock rose to $45, before dropping to $35. Instead of thinking “Darn, I miscalculated the peak,” you should think “Wow, I doubled my investment!”
  • There’s no guarantee that mortgage loan rates won’t go a little lower – but they can’t realistically go much lower. And if you make the move at today’s rates, you’ll be getting a historically good deal even if they creep a little lower later.

If you’re considering a new-home purchase or a refinance, contact a Pinnacle Capital mortgage advisor today – we can help you take advantage of this great financing climate, and we offer a free consultation anytime. To set up an appointment, contact us today!

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