Expert: Why Interest Rates are so Low

Phrases I hear from my five-year-old son almost daily are “why?” or “show me Daddy.”  I enjoy these interactions because it tells me his mind is interested in the mechanics of how things work.

Recently my phone has been ringing frequently with people asking me the same types of questions regarding mortgage interest rates.  So why are rates so low right now?

One of the major reasons is that the Fed has continued to purchase mortgage backed securities, which gives a boost to the bond markets (see bond market movement chart).  As the bond markets go up, mortgage interest rates go down.  This is one of the techniques Uncle Sam has implemented to create (and maintain) a low interest rate environment.

Interest rates are also getting some help with all of the financial turmoil we have been seeing coming out of Europe the last few months. As unsettling financial news comes out of Europe, investors in the U.S. get a bit nervous about their investments. And as investors get nervous about their riskier stocks, they move some of their money into safer bond investments, bringing bond prices up and dropping yields. When bond prices increase, interest rates decrease.

As long as we have both Uncle Sam buying bonds and shaky financial news out of Europe, we will continue to see a low interest rate environment.

The next question that seems to follow is: “how long will rates stay this low?”  This is something nobody can answer for sure, but what I can say with confidence is that rates have never been better than they are right now, and if you have not made a phone call to find out how you can benefit you might as well be throwing money out the window.

For a more detailed look at how these historically low rates can put more money in your pocket every month, please feel free to contact me. I will be happy to help you analyze what options are best for you.

Jason VanDyke (805.801.2139)

JasonV@centralcoastlending.com