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In This Time of Economic Uncertainty
A WORD ON MORTGAGE INTEREST RATES AND APPRECIATING KINDNESS AND INGENUITY
I n the wake of all the uncertainty brought on by the spread of COVID-19, I’ve spent a lot of my workdays this past month talking about interest rates and refinancing options with clients. Throughout the course of many of these conversations, I’ve found out that not a lot of people know why mortgage interest rates change. Apparently a story popped up on news feeds not too long ago that indicated that the federal government was going to drop interest rates to zero, which they did. I came into the office the next day to find tons of calls waiting for me, wanting to know if this was true. The short answer is that it isn’t true when it comes to your mortgage rates. The economy controls mortgage rates, not the feds. Why exactly this is the case, however, might take a little more explaining.
become a little more tight fisted with their money. That means, in order to keep investors buying mortgage-backed securities, or investing at all, the market has raised interest rates. That way, investors can be more assured of their returns. Even then, investors aren’t buying as many mortgage-backed securities, which leaves an overabundance of product on the market. Admittedly, that’s a lot of information to process, but the main takeaway is this: The government can’t lower mortgage rates to zero. Also, I’ve heard a lot of people draw parallels between what’s going on now and what happened during the Great Recession in 2008. I don’t really see the comparison, personally. When the housing market crashed 12 years ago, a lot of people were investing unwisely, and they knew it. The
impact of this crisis, this season of uncertainty should be short lived.
None of us are in a place where we’re particularly comfortable right now, but I hope this won’t just be a time where we’re all concerned about our mortgages. I hope it can also be an opportunity to learn more about ourselves and about how we can help others. Restaurants are creating delivery options, highway patrols are helping beleaguered truck drivers find rest and food, and workplaces are helping their employees adjust to a life working from home. There are good people everywhere innovating and working to make sure we all come out of this okay. The economic outlook from where we are right now looks scary, but I’m happy that even
“Our economy was strong when this whole thing started, and because there are several parties in both the public and private sector working hard to minimize the impact of this crisis, this season of uncertainty should be short lived.”
When you pay the interest on your mortgage, it goes to an investor who purchased your mortgage as a part of a package of mortgage backed securities. A “security” is just a term used to describe a financial asset. Because the U.S. housing market has, by and large, been booming the past few years, it means investors have been able to see returns, even with relatively low interest rates. However, in light of how volatile the market has become this past month as a result of the economic impact of the coronavirus, those investors have
coronavirus completely blindsided us while our economy was strong.
Therein lies a silver lining: Can you imagine if this virus had hit us when our economy was weak? So many more people would have been out of work and conceivably many more people would have died. I honestly believe that because our economy was strong when this whole thing started, and because there are several parties in both the public and private sector working hard to minimize the
in the midst of uncertainty, we are still practicing kindness and ingenuity.
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