Amidst the pandemic, the Fed adjusted its benchmark interest rate to zero on March 15, 2020, and it has kept the rate at that same level ever since. As a result, mortgage rates have sunk to historic lows, enabling many Americans to refinance existing mortgages or purchase new homes.
The Fed’s decision to lower its benchmark rate had ramifications across all types of loan products, from car loans to credit cards. However, the most significant impact has been to reduce mortgage rates. The average rate for a 30-year fixed mortgage fell to 3.29% in February 2021, which was the lowest rate since Freddie Mac started tracking this data in 1971. Rates for 15-year fixed mortgages were even lower, with an average rate of 2.71%, the lowest Freddie Mac had ever reported.
The low mortgage rates are an especially positive development for people who already have mortgages, as it enables them to save money by refinancing into a lower-rate loan. According to the National Association of Realtors (NAR), many homeowners have already taken advantage of this opportunity. NAR found that the percentage of homeowners who refinanced their mortgages increased from 5.8% in 2019 to 11.6% in 2020.
Lower mortgage rates may also spur more homebuying activity, as they make it easier for people to purchase a new property. Despite the economic disruption caused by COVID-19, house prices have continued to rise due to low inventory levels. Consequently, low mortgage rates can help offset the high cost of housing and help more potential buyers enter the market.
The Fed is unlikely to raise its benchmark rate anytime soon, meaning that mortgage rates will remain at rock bottom levels for the foreseeable future. As a result, now is a great time for homeowners to consider refinancing their mortgages, and prospective homebuyers should take advantage of the low rates while they last.
The Federal Reserve's decision to adjust its benchmark interest rate to zero has had a significant effect on mortgage rates. Prior to the pandemic, mortgage rates averaged 3.8% for 30-year fixed mortgages; now, they are at an all-time low of 3.29%. This has enabled many homeowners to refinance their mortgages and save money, and it has also made it easier for prospective buyers to enter the housing market. Homebuyers should take advantage of these low rates while they last, as the Fed is unlikely to raise its rate anytime soon.
This article was contributed on Jul 23, 2023
