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How Has The Recession Affected Mortgage Rates?

By Eric Goodwill

There are two things that have a major impact on how much you will have to pay to buy a home. The first is the amount that you agree to pay to the seller. The second is how much interest you’ll have to pay to the bank for the privilege of borrowing the money that’s required. With the current state of the economy, how has the recession affected mortgage rates? It’s important to understand this before you decide whether this is the right time to shop for a new home.

The Federal Funds Rate

Several elements contribute to the the bank’s decisions on what interest rate to offer. The one most directly affected by the state of the economy is the federal funds rate. This is the rate of interest which the U.S. government charges to banks that want to borrow money. When this rate is low, banks can borrow money cheaply. Therefore, they’re willing to loan money to their customers at a lower rate as well.

The Federal Funds Rate and the Economy

The Federal Reserve uses the funds rate to influence the growth of the economy. This interest rate affects how willing institutions are to take out loans to expand their operations. How has the recession affected mortgage rates? Because a recession is a period of slow economic growth, the Federal Reserve responds by decreasing the funds rate, which then allows the banks to offer lower interest rates to potential mortgage customers.

How Has The Recession Affected Mortgage Rates?

By prompting the Federal Reserve to lower the funds rate, the recession has caused mortgage rates to fall. That means that, for those who are in a position to do so, this is an excellent time to take out a mortgage. Once the economy strengthens, it is likely that the Federal Reserve will raise the funds rate once again. At that point, mortgage rates will rise as well.

Related posts:

1. Has The Recession Affected Mortgage Rates?
2. How Has The Recession Affected Mortgage Rates?
3. Why Do Mortgage Interest Rates Fall During A Recession?
4. Why Are Mortgage Rates Affected By The Economy?
5. What Interest Rates Determine Mortgage Rates?