A Great Time for Mortgage, Auto, Personal Loans

Near-zero interest rate holds

The Federal Reserve is rewarding people who are looking for mortgage, auto and personal loans with a continued near-zero interest rate. It’s good news for any borrower and considering the state of the economy, it most likely will last a bit longer. The Federal Open Market Committee sustained its target for the federal funds rate to stay between 0 and .25% throughout the month of January. The importance of the move is that banks make overnight loans to one another at the federal funds rate and that influences rates on short-term loans, variable-rate credit cards and short-term CDs. So far it’s been thirteen months straight that the Fed has kept the federal funds rate at the current near-zero rate.

A change is coming

Though the near future of interest is most likely safe, things could change. The first signs of legislators wanting to push the funds rate upwards are showing. One member of the Federal Open Market Committee Thomas Hoenig said he believes that the “economic and financial conditions had changes sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.” Chief economist for Quicken Loans Bob Walters said, the statement is the “first crack in the armor.” He believes once a few more committee members start agreeing with Hoenig, the rate most likely will start elevating.

Borrowers versus savers in the economy

For now keeping the federal funds rate low is good news for borrowers but not so good news for savers. Keeping the rate so low means that yields on insured bank deposits are going to stay low. For example, the national average on money market accounts in the beginning of January was just 0.24%. Certificates of deposit were about the same. For anyone looking to save, this is not the best time and that’s on purpose. The Fed is pushing people to start borrowing and lenders to start lending.

In addition to the federal funds rate being kept low, the Fed also bought more than a trillion dollars’ worth of mortgage-backed securities since the end of 2008. The goal for the purchase was to “reduce the cost and increase the availability of credit for the purpose of houses.” Anyone looking for a mortgage, auto or personal loan may find it much easier in this economic climate than they normally would. Walters added, “The Fed is making the loan process as easy for as many people as possible. The goal is to put money back into consumers’ pockets.” The Fed is hoping that increasing consumer’s assets causes them to return to their old ways of spending.

The future of the market

The Fed announced that after March of 2010 it will stop buying mortgage-backed securities. Everyone in the mortgage industry knows what that means: most likely, mortgage rates will quickly start rising. Mortgage analyst Adam Quinones thinks that the increase in mortgage rates might be moot. He said, “There isn’t a better time for the Fed to make an exit.” In addition, interest rates on securities will start rising slowly. For anyone looking to take out mortgage, home equity, auto or personal loans, now could be the best time to do it.

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