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Fed Official Suggests Lowering Interest Rates

By B Wood
Apr 10th, 2014

federal reserve minneapolis-thumbMortgage interest rates have stayed low this year in spite of the Federal Reserve’s commitment to reduce bond buying. It was anticipated that this would send interest rates soaring, which fortunately has not been the case thus far. Homeowners can take advantage of low interest rates to purchase a home or to refinance and save money. With 30 year mortgage rates hovering around 4.42 percent, now is an excellent time to start a loan application.

Narayana Kocherlakota, president of the Minneapolis Federal Reserve Bank, told reporters that he thinks the Federal Reserve hasn’t done enough and needs to do more. While home mortgage rates are still low, overall lending rates aren’t low enough to encourage economic growth. Lower interest rates could encourage more people to purchase homes, businesses to expands, and people to buy consumer goods.


Since 2008,the Federal Reserve has kept interest rates in between zero and 0.25 percent. He thinks that the Fed should be thinking about lowering rates again stating, “It’s really about demonstrating a commitment to stay with the recovery for as long as it takes to get the economy fully recovered.” While unemployment rates have dropped to 6.7 percent the job market is nowhere near what it should be,and until we reach an unemployment rate of 5.5 percent with an inflation rate of two percent, President Kocherlakota believes that the Fed needs to take a more progressive stance.

What Does this Mean for Homeowners?

If the Federal Reserve decided to lower interest rates, they would not be directly lowering your mortgage interest rate. Instead, this would lower the interest rate that they charge banks to borrow money. Banks base their interest rates, in part, on what the Federal Reserve rate is because that is how they make a profit. When the Fed lowers rates, banks typically respond by lowering them,as well. This impacts home mortgage rates, auto loan rates, and even credit cards. Businesses can also benefit from lower interest rates, which can lead to additional job creation.

If the Fed lower interest rates, there would likely be more people in the market to purchase a home because their overall cost of borrowing would be reduced. When this happens it can become cheaper to buy a home than to rent one. With low down payment mortgages like FHA home loans, or zero down payment options through the VA, first time home buyers can enter the market. This is an ideal situation for a family that wants to sell their existing home and acquire a different property. More buyers mean you can sell faster while low interest rates make a new home affordable.
It is unknown whether the Federal Reserve will follow this advice and lower interest rates again. What is known is that mortgage rates are low right now, making this an excellent time to buy or refinance. If you have an existing home loan contact, your FHA approved lender to see if you qualify for an FHA streamline refinance which will lower your interest rate without an appraisal. This is one of the many options available to homeowners so contact your mortgage banker to see how much you can save.