What Causes Low Mortgage Rates?
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What Causes Low Mortgage Rates?
Low mortgage rates are not an arbitrary occurrence. As with any financial change, they're the result of supply and demand, a sluggish economy, and a weak dollar. This formula, which is a direct result of the economy begging for increased consumer activity, can be the key to finding low mortgage rates, inexpensive housing options, and a favorable tax environment.
When homes aren't selling and the economy is sluggish, economic policy is adjusted to spur additional spending. That means federal interest rates go down, dragging mortgage rates with them. It also means that the IRS begins to do its part to encourage spending by offering limited tax credits, deductions, and rebates to consumers. Lastly, because people aren't buying anything (much less new homes), sellers begin dropping prices to be more competitive.
All things considered, this makes for a great time to buy if you can afford it. But it's important to remember that, during these times, banks can often be more restrictive about their lending practices. That means they might not lend unless you have extremely good credit and a large down payment, which serves almost as a good-faith investment.
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