Till now in 2013, mortgage rates have been on the lower side of the table. This sets an ideal platform for taking out a fresh loan as well as refinancing your existing loan. But, the eligibility criteria for offering a mortgage loan have been made more stringent too. This has somewhat kept a lid on mortgage approvals. Anyways, the rate on the mortgage loans has hovered around the historical lows. Here we discuss about different factors that were responsible for low mortgage rates.
1. Fed is keeping a lid on mortgage rate
The most dominant factor that has been active in keeping a lid on the mortgage rate is perhaps the Federal Reserve, the apex bank in the country. Every month, Fed is buying $40 billion in mortgage-backed securities and $45 billion in Treasury bills, in order to control the rate on the mortgages. However, how long the Fed will continue to manipulate the rate is a question of debate. But, till now, Fed is showing no signs of distracting from the policies that it is following.
2. Rate of inflation has been more or less stable
One important macroeconomic parameter that influences the mortgage rate is the rate of inflation prevailing in the country. If the rate of inflation is high, to maintain their profit margins, mortgage lenders may be tempted to increase the mortgage rates. But, since the rate of inflation has remained more or less stable in the recent past, lenders were not instigated to increase the rates.
3. Economists expect that the economy is losing momentum
The overall economic situation impacts the mortgage rates to a large extent. Though the economy is showing some signs of improvement but still the overall outlook is not very bright. It is quite evident that in case of a strong economy, the demand for mortgage loans will be very high and so will be the mortgage rate. On the contrary, for a weak economy, the demand for mortgage credit will also be low and the mortgage rates will also remain very low. Now since the economy is still struggling, investors are still banking on the safety offered by the Treasury bonds. This is driving down the Treasury yields and keeping a lid on the mortgage rates.
4. Financial situation in many overseas countries is very bad
Financial concerns in many other countries in the world, are also responsible for low mortgage rates in the country. Political and financial doldrums in the countries like Syria and North Korea and the Euro Zone area have made the global investors very skeptical and they are keeping money in the safest haven of Treasury bills. This is actually putting a down ward pressure on the mortgage rates prevailing in the country.
These are some of the main reasons for low mortgage rate prevailing in the country for some time now. Anyways, this is likely to spur the demand for fresh loan as well as the demand for refinancing the existing loan.