Negative Interest Rate Mortgages

 In Common Questions

We get calls every week from people asking if we think there will be negative interest rates for mortgages.  Negative interest rate mortgages exist in a few European countries, and President Trump regularly tweets that he’s all for negative rates, so are negative interest rate mortgages really something you should hold out for?  

Here’s what you need to know.

State of The Economy

When a nation’s economy is in bad shape, its central bank has the ability to lower the rate that banks pay to borrow money.  Banks need to borrow money from each other so they can maintain the amount of reserves they are required to have. If banks don’t have to pay much interest to borrow money, they don’t have to charge as much to lend it to businesses and consumers.  Lower borrowing rates tend to encourage businesses and consumers to invest and spend more, which in turn grows the economy.

In the United States, our central bank is the Federal Reserve.  Part of their job is to make sure that the economy in the US is doing well.  Some of the measures used to determine whether the economy is doing well are:

  • Unemployment rate
  • Consumer spending
  • Inflation rate

Our Current State

At the moment, the unemployment rate in the US is the lowest it’s been in 50 years.  Consumer spending is at an all-time high. Inflation is at 1.7%, which is slightly lower than the 2% target rate set by the Federal Reserve (the Fed sets a target rate for inflation to make sure people are always spending more than they did in the past, which grows the economy).  All three measures point to an economy that is not in bad shape at all. In fact, they point to an economy that is doing very, very well.

What does all this mean?  It means the economy in the US is doing just fine.  There is absolutely no reason the Federal Reserve would lower interest rates below zero.  Negative interest rates are seen as a last-ditch effort to save a nation’s economy, but our economy does not need saving.  

Bottom line is that we will not have negative interest rates in the US.  Our economy is simply too strong. If you are holding out on buying a house or refinancing an existing mortgage because you think rates will continue to go lower and lower and eventually go negative, you are making a mistake.  Mortgage money is incredibly cheap right now. Take advantage of it and build some wealth. Contact us today to get started.

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