Tuesday, March 8, 2016

How low will interest rates go?

Anders Liljehom seemed to be outsmarting the global economy.

Just a few months ago, virtually every financial expert was warning that years of record-low mortgage rates were about to end. The Federal Reserve was preparing to raise interest rates for the first time since the Great Recession, a move that was supposed to increase the cost of borrowing across the economy.

Liljehom, a 38-year-old from Portland, decided he would act first: He refinanced his mortgage in December, with only days to spare before the Fed raised rates.

But since then, the economy has defied almost every forecast. Analysts are debating the probability of a recession rather than the progress of the recovery. Instead of raising interest rates, the central bank is veering in a far different direction, hoping not to cut them. And that means mortgage rates — much to Liljehom’s chagrin — are lower now than when he refinanced.

“I could have saved more money if I’d waited,” Liljehom said. “My interest rate is still quite low, but it does sting a little knowing it could have been lower.”

It is yet another unanticipated ripple effect of the global economic slowdown: For many Americans, who have benefited from a collapse in gas prices, interest rates have plunged on mortgage and auto loans. The decline in rates comes as most of the readings on the global economy have been glum. China’s meteoric economic growth is starting to plateau, striking fear in investors around the world. The recoveries in Europe and Japan are stalling, and policymakers are having a harder time jump-starting them.

But all that bad news has an upside: ultra-low rates. Analysts are wary of predicting how long this grace period will last, but many consumers are welcoming the extension of easy money that many feared had passed them by.

The drop helps to “create some much-needed breathing room in the household budget,” said Greg McBride, chief financial analyst at Bankrate.com.

Since Jan. 1, the average rate on a 30-year fixed mortgage has dropped from 4.01 to 3.62 percent, according to Freddie Mac. Mortgage rates have sunk to levels not seen in nearly a year and are close to their all-time low, prompting economists to reduce their forecasts for rates in 2016. Full Article 

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