How Stimulus Affects Your Mortgage

All everyone seems to be talking about is the huge fiscal stimulus package that was enacted by the White House and the Congress. Being the biggest bailout in history, you have to start thinking about how stimulus affects your mortgage. On the surface, it is a long-term medicine for the economy, which means lower mortgage rates.

However, there is more to the subject other than the reduced rates. For starters, a lower rate means that homes are more affordable. In this article, we will take a comprehensive look at how the stimulus package will affect your mortgage.

Expected Longer-Term Gains Due to Rate Cuts

The Federal Reserve is looking to lower mortgage rates by intervening in the bond markets and slashing interest rates. Note that once the US Treasury bond yields are affected, it will influence the borrowing costs on different types of loans.

The overall effect of this move is that consumers can enjoy extremely low mortgage rates. Understand that the market will benefit from the longer-term gains in the long run. Note that the Federal Reserve vowed to support financial markets and open-ended buying of corporate debt, mortgage-backed securities, and treasury bonds.

What Should Homeowners Expect

Did you know that a drop in mortgage of about 0.25% will lead to a reduced monthly payment of 3%? With this in mind, thinking about mortgage rates dropping by up to 1% to match with the Treasury yields drop. Such a huge decline will dictate a fall in mortgage rates by about 12% monthly.

Most homeowners use about a third of their income to pay for their mortgages. If mortgage refinishing is done at the above rates, homeowners can get to increase their monthly incomes by about 4%. What this means is more money in the pocket of homeowners.

How Long Before Mortgage Rates Decline

First, you have probably noticed that the bond and stock market are already in motion. However, other lending rates including mortgages will take time. It will, therefore, take a while before the subtle effect makes its way down to the consumers.

Until now, banks have not started lowering their mortgage rates. Note that this is after the Treasury yields have already fallen. The scenario, therefore, creates an imbalance between the demand and the supply in the market. The final result was that mortgage rates have increased. At the moment mortgage companies are having a difficult time dealing with all the applications coming their way.

What Happens to the Economy?

On the positive side, we should all expect the mortgage rates to fall and match the Treasury yields. Note that the Federal Reserve is striving to close this gap by buying bonds, thus ensuring the mortgage rates are kept low.

Once we start feeling the effects of this change, homeowners will easily refinance into significantly lower payments. Having more money than you did each month in your pocket will serve as a huge boost to the economy. The stimulus package will finally have the intended effect but after a bit of time.

Conclusion

Are you thinking of buying a new home? Atlanta Home Mortgage includes a capable team that will make the work easier for you. We will also keep you informed throughout the entire process to ensure you are comfortable with each step.

At Atlantic Home Mortgage, we will also help you understand everything about the stimulus package and its effect on mortgage rates. We understand that homeowners need all the information they can get, especially during these challenging times. Ensure you contact us today to speak to an experienced and licensed professional. It is time we got you that dream home at the best market rates.