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Where Are Mortgage Interest Rates Headed And Why?

By Jim Micheals

Why Interest Rates Went Down for so Long

For years, the Federal Reserve tried to keep interest rates banks owed low. This kept keep inflation down and created jobs. It also helped lower mortgage interest rates. It was easy to answer the question: are mortgage interest rates headed up or down? Things began to change, however.

The Economic Crash of 2008

When so many people borrowed so much money they could not pay back, the economy crashed in 2008. The Federal Reserve then lent huge amounts of money to banks at zero interest. One reason the banks had lost so much money was their investments in mortgage backed securities.

What Happened to the Economy Then

The policy by the Federal Reserve may have saved the banking industry. After borrowing money banks invested much of it in bonds and made a profit. Congress also spent enormous amounts of money to stimulate the economy. Although it has been a slow process, the economy has improved.

How Mortgage Interest Rates Were Affected

Federal Reserve Chairman Ben Bernanke recently said that enormous spending by the government could eventually again make the economy turn sour. Banks have been buying less government bonds. As a result, mortgage interest rates have started going up. Recently, the interest rate for a 30-year fixed mortgage increased from 5% to 5.2%, the highest rate in eight months. If anyone asks, are mortgage rates headed up or down, the answer is obvious.

Remember the 80′s?

Even though mortgage rates were in double digits in the 1980′s house prices were much cheaper. Today’s consumers may need low rates to be able to afford monthly payments on more expensive houses.

Related posts:

1. Where Are Mortgage Rates Headed Now That The Fed Has Stepped In?
2. How Do Mortgage Interest Rates Affect Bonds?
3. What Interest Rates Determine Mortgage Rates?
4. Where Are Mortgage Rates Headed In The Second Half 2010?
5. What Interest Rates Determine Mortgage Rates?