Video Transcription
Interest rates and lending can be a confusing topic for even a seasoned real estate veteran. And the recent rate cuts by the Federal Reserve and mortgage rate fluctuations have only complicated things.
Hi, I’m Sommar Clark with the Clark Team Keller Williams, and I’m here to help you make sense of what’s going on. The first thing to understand is that there is not a one-to-one correspondence between the Federal Reserve’s prime rate and mortgage rates. Mortgage interest rates are determined by a variety of factors, including inflation, economic growth indicators, the Federal Reserve policies and the housing and bond markets. When the Fed cut the prime rate between zero and 0.25% in the wake of the coronavirus outbreak, many people thought they could get an interest free mortgage. That’s not the case, as indicated by this meme that has been making the rounds on social media. While not exactly scientific, it has a point. Rates initially increased despite the Fed’s prime rate cut, and what’s going to happen with rates going forward is anybody’s guess.
Freddie Mac has provided this helpful summary of what’s happening with rates showing that they increased by seven tenths of a point over the course of just one week. While that is an increase, it’s important to note that rates are still near historic lows. In fact, the 30 year fixed rate is still substantially lower now than it was at this time last year. Low rates are good news for the real estate market. If you’re buying, the benefit is obvious. Money is cheap to borrow, which saves you a ton over the life of the loan. If you are a seller, low rates are good because they encourage buyers. And even if you’re not selling, a healthy market is good news for the equity you’ve been building.
I’m Sommar Clark with the Clark Team, and we want you to love where you live.