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Ultra-low mortgage rates are likely to stick around, thanks to the Fed

·3 min read
Ultra-low mortgage rates are likely to stick around, thanks to the Fed
Ultra-low mortgage rates are likely to stick around, thanks to the Fed

Despite optimism surrounding the rollout of vaccines and additional government aid, the Federal Reserve has announced it's keeping a key interest rate near zero for the foreseeable future.

Policymakers also have decided to keep buying up Treasury bonds and mortgage-backed securities, to give the economy more support. Fed Chairman Jerome Powell (pictured) and his colleagues say they're concerned that the economic recovery has slowed — or "moderated," in Fedspeak.

All of that will maintain the low interest rate environment that has helped send mortgage rates to unbelievable lows, so borrowers can expect rates to stay down, with occasional fluctuations.

Thanks to Powell and company, homebuyers — and homeowners wanting to refinance their existing mortgages — still have time to lock in favorable rates and save a boatload of cash on interest costs.

Fed is being guided by the virus

headquarters of the Federal Reserve in Washington, DC, USA,FED
MDart10 / Shutterstock

At the end of a two-day meeting on Wednesday, Fed policymakers released a statement saying they're leaving their benchmark interest rate — the federal funds rate — unchanged. The rate has been close to zero since last March, when the central bank slashed it in response to the pandemic's devastating economic effects.

"The path of the economy will depend significantly on the course of the virus, including progress on vaccinations," the statement says.

But things have been moving in the wrong direction, writes Diane Swonk, chief economist at the accounting firm Grant Thornton.

"The surge in cases, hospitalizations and fatalities since the last meeting has been staggering," Swonk says. "At the same time, uncertainty about the containment of new, more contagious variants of the vaccine has increased."

It's all good for mortgage rates

Bag with the money and the word Mortgage interest rates and arrow to dow, representing falling mortgage rates.
Andrii Yalanskyi / Shutterstock

Along with keeping its thumb on the federal funds rate, the Fed announced it would expand its bond-buying program by purchasing $80 billion in Treasury bonds each month and at least $40 billion in mortgage-backed securities. Those are investments made up of bundles of home loans.

The central bank's actions don't directly impact mortgage rates, but they inevitably do move the needle on interest rates across the board.

Mortgage rates tumbled after the bank first cut rates, and since then have been on an extended downward streak. The average for a 30-year fixed-rate mortgage hit record lows 16 times in 2020, according to the long-running weekly survey from mortgage giant Freddie Mac.

Rate this week are averaging 2.73%, Freddie Mac says, not far above the most recent all-time low of 2.65%.

How to score ultra-low rates

Concentrated attentive millennial spouses sitting on couch at home discussing whether to refinance their mortgage.
fizkes / Shutterstock

With the Fed keeping interest rates down, low mortgage rates aren’t going anywhere, right?

Not so fast. Even with the central bank’s support, other factors — like the potential for a big boost in government spending against COVID — could push rates higher in the coming months. Freddie Mac is forecasting that 30-year rates will rise close to 3% this year.

In the meantime, you can still land a super-cheap mortgage rate by shopping around. If you compare loan offers from different lenders, you can save thousands of dollars in lifetime interest on your loan.

Don’t stop there — you can keep on saving by comparison shopping for the lowest price on homeowners insurance for the coverage you need.