So the 30 Year Mortgage rate is 3.5% and lower - how did we get here?
Mortgage: a term that quite frankly everyone shudders at and wants to avoid. Mortgages are synonyms for debt – a life time of it, especially if you have been watching the economic news. Who remembers the phrase "It's the economy, Stupid?" Experts have kept a close eye on the Commerce Department spending reports. Reports which are supposed to provide valuable insight into the health of the American Economy, however did you realize that these reports are one of the primary influences on home loan rates? Imagine that, personal spending actually dictates that interest rate that is available to purchase or refinance residential property. Hmmmm....
Let's take a moment to look at why that is. Our government has committed to pumping money into the economy, yet economic reports still show the economy is weak. Everything from hiring and unemployment rates, to gross average income, and gross average spending has remained steady. More money has been placed into the economy, but nothing has changed? Where is that money going? Consumers and business owners alike are playing the "wait and see" game. Few people recognize that the velocity of money (speed at which money changes hand, or the measure of the circulation of money) is the key to turning this economic situation around.
Certainly we all want to see better economic reports, and enjoy the luxuries that have eluded our grasps. The present velocity however is at free fall, one that some economists have compared to that of the 1920s in Germany where people would pay for their food before eating because they were afraid of the price rising while they were eating. That's a little far-fetched, but with the velocity at such low levels inflation is not rising. Once inflation begins on its upward spiral, economic reporters will be rejoicing. The faintest scent of inflation is directly tied to the circulation of money already in the economy, and
everything is affected.
The lack of inflation is great for Mortgage Bonds and rates, and I have been saying for a while now that mortgage rates are a double-edged sword; while they are historically low, home buyers and owners are reaping the benefits – once they begin to rise, it will correlate with a higher velocity, faster inflation, and relaxed consumers! Who would ever have thought that inflation would create comfort?!
As I just mentioned, current home loan rates are at a historical low level. It's worth the effort to at least check with a local loan advisor to see if you can benefit - especially if your mortgage rate is 4% or higher. It can't hurt to check, and an hour of your time could save you thousands of dollars. That's a pretty good trade-off right?
Stew Silvis is a licensed loan advisor in Pennsylvania. If you're interested in refinancing, feel free to contact him