Health & Fitness
The Untold Story of Low Interest Rates
The business news over the last few weeks has focused on a sputtering economy and a double dip in real estate prices, but one story has been largely untold.
This is a story that parallels the bad news that we have been hearing about the financial markets and the economy.
This story generally develops when there is flat GDP growth, a bad housing market, and mediocre job creation. All these elements point to poor prospects for economic growth and lower inflation.
The story gets better when there is economic uncertainty worldwide due to looming debt and budget crises in a number of countries. This leads to a move by investors to safer investments such as US treasuries and mortgage backed securities. Here are the themes at play in this story:
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- low growth = low inflation = low interest rates
- world economic uncertainty = flight to quality US debt = low interest rates
In the event you haven’t figured it out, the untold story is the drop in interest rates. When both themes occur simultaneously, rates drop a lot, which is exactly what has happened over the last sixty days.
Rates are approaching the all-time lows hit last fall. We’ve got about .375 percent to go before we touch the low of lows, but I don’t think our storyline will change anytime soon, so the prospects for a “double dip” in interest rates are looking pretty good. As for those of you that are questioning the part of the formula above that references “quality US debt,” that discussion is for another day.
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So where are rates now? Without getting into specifics that would trigger a long list of disclosures and disclaimers, 30-year fixed rates are in the low to mid 4’s, 15-year fixed rates are in the mid to high 3’s, and 5-year ARM’s are right around 3. The rate you will be offered by a lender is a function of loan type (FHA, VA, Conventional), loan size (conforming vs jumbo), loan to value ratio, and credit score.
Yes, it is complicated, so don’t call up a lender and ask “What’s your rate today?” Be specific about your request. The quote you receive will only be as good as the information you provide to the lender.
Get a couple of different quotes; written quotes are best. Rates and fees will vary between lenders. Rates can change daily, sometimes multiple times per day, so keep that in mind as you compare quotes. Ask your realtor, financial planner, or tax person for a referral to a loan originator. They often network with lenders, so they may be able to direct you to a qualified professional that they trust.
The mortgage business has become much more complicated over the last couple of years. Underwriters now check for more than just a pulse. Sound advice and competent loan processing is more important than ever. Mortgage loan originators must also be licensed or registered by the National Mortgage Licensing System. Click here to see if yours is.
The problem with this story is you never know when the end is near. At least with a book, you can take a peek and see how many pages are left. The story of low rates will end at some point. Whether it’s due to inflation fears, a renewed interest in international bonds or equity investing, or some combination of the two, rates will once again trend upward.
There are other factors to consider as well. If the government pulls out of the mortgage lending business as is being discussed in Congress, rates will certainly increase and that has nothing to do with the factors mentioned above. Buying a home? Considering a refinance? Now is the time to add the low interest rate chapter to your own story.
