How Long Will Low Mortgage Rates Last?

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No one can know for sure, but the evidence does point in one particular direction.

Homebuyers and homeowners in the market to refinance have an unprecedented opportunity to borrow at record low mortgage rates right now.

An interest rate of less than 3% on a 30-year fixed-rate mortgage was difficult to imagine pre-pandemic. But the world is now a very different place and rates have been trending well below this level for weeks. Interest rates on 15-year loans have also plummeted. In fact, mortgage rates have repeatedly broken records by falling to new lows across the board.

If you're on the fence about a refinance or want to buy a home but aren't quite ready, you may wonder how long these low rates will last. Unfortunately, it's almost impossible to predict. But there are some encouraging signs that rates may stay low for a while.

A few key factors suggest mortgage rates will stay low for a long while

A number of factors affect mortgage rates. Key among them are actions of the Federal Reserve. And the Fed is doing two big things to help keep mortgage rates low.

1. Keeping its rates low

The overnight lending rate will remain between 0% and 0.25% for the foreseeable future -- likely until inflation tops 2%, which is very unlikely to happen any time soon. Mortgage rates are not directly controlled by the Federal Reserve, but the overnight lending rate is the rate at which banks lend to each other. When it's low, lenders keep mortgage rates low and so pass the savings on to consumers.

2. Buying mortgage-backed securities

The Federal Reserve is also buying mortgage-backed securities and has affirmed it plans to continue to do so for a while. This is called quantitative easing. Without going into too much detail, it ensures lenders don't have to keep mortgage loans on their books as there's demand in the secondary market. This makes credit more widely available, which, in turn, helps to drive rates down.

Mortgage rates also generally tend to follow the yield on the 10-year treasury bond, but that's actually been trending a bit lower than the rate on home loans. This wider spread between mortgage loans and the treasury yields could mean there's actually room for mortgage loan rates to fall even further.

These aren't the only factors that suggest rates could stay near rock bottom for a while. The longer the economy remains sluggish, the more likely rates will stay low. And leading economists now predict a slower-than-anticipated recovery because Washington leaders have not passed any further coronavirus stimulus legislation.

Finally, mortgage demand is tempered by a lack of available housing inventory, which also prevents rates from being driven upward.

Low rates can't last forever, though

Rates are unlikely to go up any time soon, but no one knows that for sure. If the economy begins to improve or inflation trends higher, then rates could rise quickly.

Fannie Mae and Freddie Mac, two government-sponsored mortgages entities, are also set to impose a fee in December that could send refinance rates higher. This fee has already been postponed once due to industry outcry so there's no guarantee it will go through, but if it does, it will impact your mortgage refinance rate.

The bottom line is, nobody has a crystal ball to predict the future. If you're considering a home purchase or refinance, make sure your finances are in the best shape possible and compare rates with several leading mortgage lenders. If you qualify for a rate you're happy with and can afford the monthly payments, lock it in now. Don't wait in the hope rates will fall further and risk missing out altogether.

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