At the beginning of 2014, financial experts predicted rising interest rates well into the 5% range. Their predictions haven’t come true, thankfully, and mortgage rates are still in the low to mid 4% range and mortgages are very affordable.
Why were these predictions made, and why haven’t they come true? Well, because the Federal Reserve was going to slowly stop buying up mortgage-backed securities, which would make interest rates rise. But as the interest rates rose slightly, there was a drop in the number of people that wanted mortgages, so the demand went down a bit, causing loans to become cheaper. In this way, rates didn’t vary more than a tenth of a percent from week to week, never going up to 5%, and balanced out by the laws of supply and demand.
When the economy is better, people take more financial risks and take out more loans, which is when demand goes up and interest rates rise. While we’re recovering from the recession, people are less likely to make risky investments, so fewer people are seeking mortgages overall, meaning that rates stay lower. There is no reason to expect interest rates to rise quickly any time soon despite the Federal Reserve’s cessation of buying mortgage-backed securities. The historically low rates we are seeing right now may not last forever, but they are at least here for now. To get an idea of exactly how historically low these rates are right now, I’ve included a chart for you below. If there is one thing to be learned from how incorrect financial experts were about interest rates in 2014, it’s that the media is not the final word on the mortgage industry. Always listen to a licensed mortgage banker or broker for your mortgage information, not the online media.
