ABBA First Mortgage News

How low will mortgage rates go? Not to “0” for sure!

Mortgage rates in the U.S. could hit new record lows as the coronavirus outbreak continues, but there are multiple factors preventing them from falling to zero. In and of itself, the Fed’s rate cut won’t cause rates on home loans to fall. Because mortgages are long-term loans, their interest rates tend to track long-term bond yields rather than short-term interest rates such as the federal funds rate. Indeed, this is not the first time the Fed has dropped its benchmark rate to zero. Rates were held at that level between December 2008 and December 2015 to help the U.S. economy weather the Great Recession.

Even through all of that, the median rate on 30-year fixed loans was 4.2% during that time period, noted Danielle Hale, Chief Economist with realtor.com. And even if Treasury yields were to fall to the same level as the federal funds rate, rates on home loans likely wouldn’t follow. “Because mortgage bonds are considered riskier than government bonds, they tend to be slightly higher than 10-year rates,” Hale said. “Even if the market spread were to return to normal, given where 10-year rates have been in the last week or so, we’re looking at average rates on 30-year fixed loans around 2.5% at best.”

Source: MarketWatch

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