Falling Interest Rates are a Boon for Buyers

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Mortgage Rates in North Carolina Still at Historic Lows in 2014

Mortgage rates in North Carolina and elsewhere throughout the country are still at historic lows, and in fact have fallen over the past two months.

As I write this column, rates are between 4.23% APR – 5.07% APR in North Carolina, with 4.25% available for those with good credit on a 30-year fixed-rate home loan and 3.27% available on a 15-year fixed home loan (per BankRate.com).

On February 11, 2014, Federal Reserve Chairwoman, Janet Yellen, made this statement to the press:

“The housing sector has continued to see improvement with robust construction activity and higher home prices. How will continued reductions affect the housing market? Well, I think that quantitative easing or purchases of securities did serve to push down mortgage rates, and other longer term interest rates quite substantially and was a factor underlying the strength of the housing market. And also promoted a recovery in house prices that’s been good for so many families. We did see a backup in interest rates in the spring, and into the summer. In part, I think that was associated with the evaluation of the strength of monetary growth. But although mortgage rates are still very low, we certainly have seen a slowing in the housing sector since mortgage rates have backed up. I’m hoping housing will continue to support the recovery.”

Of course, the market liked her report, what with rates creeping downward to 4%. Basically, Chairwoman Yellen said that the central bank will continue to follow the low-interest-rate path followed by her predecessor, Ben Bernanke. “Let me emphasize that I expect a great deal of continuity in the Federal Open Market Committee’s approach to monetary policy,” she said.

At the start of 2014, mortgage rates were around 4.53%. Just a few percentage points difference can make a significant change in your monthly payments. As an example of how important the interest rate is, a home loan of $200,000 at 4.23% has a monthly payment of $982, while the same loan at 4.53% would have a monthly payment of $1,017.

Generally, when the economy is weak, the government takes actions that cause interest rates to fall because that encourages buyers to get loans and it spurs the economy. When the economy is strong or recovering, the Fed will take action to raise rates in an effort to reduce the amount of loan activity since too much “easy money” may cause inflation.

Although the Fed had earlier indicated that rates would soon be rising due to economic recovery indicators, Freddie Mac showed that rates dropped 0.09 percentage point the first week of February to 4.23% on a 30-year, fixed-rate home loan.

Lower rates are great for those looking to buy a house, refinance to get lower payments or reduce credit card debt. Low interest rates are also great for home sellers since more buyers come into the market. You can negotiate lower payments when interest rates are low and you’ll pay much less in interest over the life of the loan. But lower rates are not as great for your savings account as it will earn less.

Contact your National Home Finance mortgage consultant today to help you lock in a historically low rate for the purchase of your new home.

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