The current financial troubles in Europe are proving to be an unexpected blessing for U.S. homebuyers. With the value of the Euro steadily declining, large international investors are now putting their money into U.S. Treasury Bonds. The value of these bonds has a direct impact on mortgage interest rates. When the value of U.S. Treasury Bonds go up, mortgage interest rates go down.
The increased demand and buying of U.S. Treasury Bonds has forced their value up which in turn has allowed mortgage interest rates to drop to a new 50 year low.
So what does that mean for homebuyers and homeowners? That this is an EXCELLENT time to buy or refinance!
These low rates coupled with incredible home prices allows a homebuyer to literally own a home that was far beyond their reach 3 years ago, for less per month than they pay in rent. In real dollars and cents, a $150K, 30-year loan at 5% is a principal and interest payment of $805 per month.
The low rates also make it an excellent time for current homeowners to refinance. Approximately 50% of homeowners with a 30-year fixed rate loan have a rate that is higher than 6.25%. Even with the cost to refinance, it makes sense to refinance.
The hurdle that borrowers are facing is getting approved for the mortgage. Mortgage approval guidelines are more stringent than they have been in the past 12 years. Tons of paperwork will now be required and only those borrowers with excellent credit scores will be able to take advantage of the lowest available rates.
“It’s all Greek to Me”
As Americans ponder whether to take advantage of historic interest rates, few realize the great irony that the economic woes of the tiny island of Greece could be one of the key reasons for American mortgage interest rates falling to a 50 year low!
If this connection is “all Greek to you”, here is a simple explanation: Greece is a member of the Euro Zone, which is an economic and monetary union consisting of 16 European member states. These states have agreed to adopt the Euro as their sole legal currency. The Euro currency was supposed to bring economic strength and unity to the member states. But, as we all know, every group is only as strong as its weakest link. Greece seems to be that weak link.
And in typical Greek tragedy fashion, Greece is very small in comparison to the other 16 Euro Zone states. Greece has a population of only 11 million while the rest of the 16 Europen member states of the Euro Zone have a total popoulation of over 329 million. Yet Greece is that major weak link in the Euro Zone.
Greece’s national debt is now bigger than the country’s entire economy. Simply put, Greece spends 12.7% more than it currently makes in revenue. Fear of Greece’s negative impact on the value of the Euro has prompted major investors to seek safer investments such as U.S. Treasury Bonds.
Thus, Greece could be the domino that has pushed U.S. mortgage rates lower than anyone had predicted.
Let me know if you’re interested in finding out more about getting mortgage rates at a 50-year low.