The Federal Reserve is keeping a key interest rate at an all-time low — which is helping to push mortgage rates to new lows.
Rates on home loans have plummeted to a new record: an average of less than 3.25% for 30-year fixed-rate mortgages, according to a long-standing survey.
Homeowners have been in a frenzy to refinance and reap big savings, and now more homebuyers joining the party. Lenders say thanks in part to historically low mortgage rates, buyers are submitting more mortgage applications than they have in weeks.
The Fed says that because of "sharp declines in economic activity and a surge in job losses" from the coronavirus pandemic, it's keeping its benchmark interest rate near zero, matching the bottom that was reached during the 2008 economic crisis and the Great Recession that followed.
Experts say interest rates — including mortgage rates — are likely to stay down for a long time, potentially years.
As the Fed stands firm, mortgage rates drop
The Fed has it decided to keep its target for what's known as the federal funds rate at a range of between 0% and 0.25%.
The central bank slashed the rate to that ultra-low level last month as the severity of the coronavirus crisis was becoming clear.
Things aren't getting better, Fed policymakers say.
"The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term," the officials said in their statement on Wednesday.
One day later, mortgage giant Freddie Mac announced that rates on home loans took a big slide this week — to a record-low average of 3.23% for a 30-year fixed-rate home loan, from 3.33% last week%.
The company's survey has been keeping track of mortgage rates since 1971.
It was the second report this week to find rates at a new low. The Mortgage Bankers Association, or MBA, says rates fell to a lowest-ever average of 3.43% in its weekly survey.
With rates so attractive, mortgage applications from homebuyers jumped 12% last week and reached their highest level in about a month, the MBA said.
Meanwhile, homeowners are refinancing into lower rates to slash their interest costs and their monthly payments.
Low rates here to stay?
The Fed's federal funds rate does not directly affect the long-term rates on home loans, like 30-year fixed mortgage rates. But during these times of COVID-19 chaos, the central bank's rate-chopping has created a low-rate environment that has contributed to big declines in mortgage rates.
The Federal Reserve's extreme measures could very well extend for the next decade, says Aaron Brachman, managing director of the Washington Wealth Group in Washington, D.C.
"This may sound dramatic, but think about the economic damage currently taking place," Brachman says. "In one month, we have seen all of the jobs created within the last decade be lost. The longer that this shock goes on, the damage gets exponentially worse."
Rates on mortgages could go down a bit more — but don't hold your breath waiting to see 0% home loans, says Brachman.
"Mortgage Interest rates are extremely low, they are not going to go much lower in the short term," he says. "If interest rates continue to stay at these low levels for several years, then mortgage rates will likely drift a little lower."
Mortgage rates are unpredictable, so never try to "time the market" and wait for even better rates to come along. If you're looking to buy a home or refinance and spot a great rate that would work well for you, try to lock it so you won't lose out.