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Since the onset of COVID-19 and the resulting economic and social restrictions imposed in response, the Board of Governors of the United States Federal Reserve System has cut the key benchmark interest rate nearly to zero percent. In turn, most lending institutions began to lower rates on loans, including mortgages. How low will mortgage rates go?
With the future uncertain, many people have decided to put off buying a home, leading to a precipitous drop in mortgage applications. This trend follows on the heels of financial upheaval as businesses and schools closed, reopened, and closed again across much of the country following spikes in illness. Have we hit rock bottom in regard to mortgage rates yet, or will they drop even lower?
Mortgage rates have plummeted, hitting low after low throughout 2020. On December 31, 2020, the average rate for a 30-year fixed mortgage dropped to record-hitting 2.67%. On January 7, it dumped further, to reach a new record low of 2.65%.
That’s not all: 15 year fixed mortgage rates are even lower, hovering at 2.16%. Could mortgage rates go even lower?
The Federal Reserve has the power to stabilize the economy by regulating the price of money. The usual method of regulation is through manipulation of short-term interest rates. If interest rates drop, borrowing money is cheaper, More people borrow money, spend that money, and stimulate the economy.
If rates stay too low for too long, however, the value of the dollar begins to decrease. The amount of goods and services available for purchase stays level, and spending stagnates again.
The Federal Reserve can also buy and sell Treasury bonds in the open market, increasing or decreasing the amount of cash in circulation. Buying bonds causes prices to rise while interest rates drop. Selling bonds makes interest rates climb and prices decline. Bond buying and selling is less immediate then interest rate manipulation, and affects rates less dramatically.
Banks lend and borrow on different levels. They lend to businesses and consumers, and borrow from each other and from the Federal Reserve. The Federal Reserve can impose reserve requirements on banks, making them maintain a certain portion of their total deposits on hand to prevent the likelihood of a run on the bank.
For nationally chartered banks, the Federal Reserve holds additional regulatory authority. As the ”Fed” makes money more or less expensive for consumers, it also has the same effect on banks and other lending companies that use banks. Banks typically raise rates when the Federal Reserve does, but the reverse is not always true.
State regulators can make banking more or less profitable, indirectly affecting the interest rates and fees charged. The following states can specifically affect interest rates through regulation of financial services companies, including banks.
The Department of Financial Institutions (DFI) regulates state-chartered banks and lending institutions according to the Revised Code of Washington (RCW) and the Washington Administrative Code (WAC).
Rules clarifying regulatory statutes, examination of state-chartered lenders and services for consumer protection all fall under this agency’s jurisdiction. While deposit institutions are overseen by the Division of Banks, mortgage originators are subject to the Division of Consumer Affairs (DCA).
In Oregon, the Division of Financial Regulation (DFR) shepherds the operation of those banks, credit unions and other financial service companies requiring a charter or license. The DFR issues regulatory guidance, receives accounting reports, and advises the public as to their rights
The Oregon Revised Statutes (ORS) and Oregon Administrative Rules (OAR) authorize DFR to examine financial organizations for business irregularities. In addition, the division fields questions and complaints regarding insurance providers from home and auto coverage to health and life policies.
Lenders in Idaho are regulated by the Department of Finance, Banking Section. This agency is responsible for supervising the state-chartered savings banks, commercial banks and financial holding companies. It also regulates independent trust companies and business/industrial development companies that operate under state licensing.
Department employees audit the reporting of lenders, and conduct ongoing training for industry professionals. This government agency also operates with independent accreditation from the Conference of State Bank Supervisors. Accreditation keeps the regulators accountable to the public they serve.
Banks in Colorado are accountable to the Department of Regulatory Agencies, Division of Banking. This department operates similarly to bank regulators in the other states mentioned above. Commercial banks and savings banks, trust companies and other depositories fall under this division’s dominion.
The department also houses the State Bank Commissioner, which makes Colorado unique. This officer can add points to the discount rate declared by the Fed, and apply them to financial institutions state-wide. This discretion has an enormous impact on the overall Colorado economy.
Most would-be homebuyers realize that current low rates are worth capitalizing on. Some borrowers may want to lock in a mortgage immediately, but could rates get even lower?
Right now, the 30-year fixed-rate mortgage rate is 3.18%. Here are some reasons why mortgage rates have been so low lately.
The US economy is in a deep recession, and unemployment has reached staggering levels. But over the past few months, we’ve been seeing improvements in numbers, which may suggest that rates may not dip under the 3% mark.
The housing inventory is extremely low. This drives mortgage rates down as competition increases for available properties.
Roughly 90% of Americans qualify to refinance their current mortgage. With rates at near-lows, banks will have to compete fiercely for these refi opportunities. Lenders don’t make their money solely off of interest, but can recoup through origination fees and closing costs as well as selling loans at a premium on the secondary market.
That said, there are areas in which mortgage rates might see a small bump due to additional changes in the industry:
Fannie Mae and Freddie Mac, government-based entities that purchase home loans, have announced they will impose a .50 percent fee on the refinances they purchase, starting in December.
Banks are tightening restrictions and raising minimum qualifying credit scores out of fear that defaults will be on the rise. Expect higher interest rates for those who no longer handily meet credit score expectations.
At Sammamish, loan officers can help match you with a home loan product that gives you the best interest rate possible on your mortgage. Unlike banks and other large financial institutions, mortgages are all we do, which allows us to focus all of our attention on sourcing the best possible options for our clients.
Sammamish Mortgage has been in business since 1992, and has assisted many home buyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon and Washington.
Contact us if you have any mortgage-related questions or concerns. If you are ready to move forward, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.
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