What Does the Fed’s Zero Interest Rate Plan Means

With the newest announcement from the Federal Reserve, it can mean that people who were rushing to close down on low interest rate loans have now more time to do so. The new announcement by the Fed’s policy makers said that they would maintain the near zero interest rates instituted earlier in 2020. This indicates that they aim to keep rates at such low levels through 2022.

The statement also said that the Federal Reserve will also keep on buying government and mortgage-backed bonds at a steady rate to keep markets functioning. These are the strictest measures that were announced by the Reserve ever since the 2008 financial crisis.

These steps indicate that the Federal Reserve will undertake extreme measures to help consumers after the coronavirus wreaked havoc on the businesses and kept real estate investors on the sideline.

Experts believe that these steps also indicate a serious concern regarding the United States economy’s ability to take off as well. This was clearly indicated by the message that the stock market took from the announcement. The Dow plunged more than 1,800 points afterwards. But there is good news for people looking to invest in commercial and residential real estate.

The announcement means that the mortgage rates will also remain at this record low for now an unpredictable amount of time. The fact that the Reserve will be expanding the bond buying program (quantitative easing) will also mean that people looking to buy, or refinance can do so as mortgage lenders will have an easier time selling on mortgages.

Many economists that are well versed in real estate sector are predicting that these mortgages interest levels will hold. They do not believe that these interest levels will go down as most mortgage lenders are already operating at capacity.

Another thing to consider is that these new rates are not for everyone. These low interest rates apply to the most basic fixed term loans like 30-year loans. People with such fixed term loans with excellent credit and ability to make a 20% down payment will benefit the most.

For others it might be difficult to obtain a real estate mortgage. According to experts many people with adjustable-rate mortgages (ARM), will also see their interest rate go down as well. But it might not happen quickly as ARMs generally reset just once a year.

Such low interest rate loans can also mean that if you are looking to refinance at a lower rate, this is the time. Refinancing can mean that you pay of the existing loan and start a second loan with better terms and lower interest rates. It can mean that you will have to pay lesser amount of money every month in monthly installments of your real estate mortgage.

Refinancing right now can also help you shorten the term of your mortgage and help you convert it from an adjustable-rate mortgage to a fixed-rate mortgage, or vice versa. It is also a good time to refinance if you have home equity as it will allow you better terms and conditions.

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