Photo (cc) by 401(K) 2013
Loan calculators are at their most useful in a volatile interest rate environment because tools like mortgage payment calculators can help consumers quickly put interest rate changes into dollars-and-cents perspective. If recent events are any indication, mortgage calculators may keep humming busily in the weeks ahead, as rates adjust to new developments.
Three developments of note
Mid-March saw three important developments for mortgage shoppers:
- On March 15, the Bureau of Labor Statistics released the Consumer Price Index for February, showing a sudden rise of 0.7 percent that month. That would equate to an annual inflation rate of more than 8 percent.
- The Federal Open Market Committee concluded its recent meeting. The Fed’s press release included a commitment to continue the stimulative policy of buying mortgage-backed securities and long-term bonds until the economy shows sustained improvement.
- On March 21, mortgage rates halted a recent rising trend — at least temporarily. Overall, rates have been rising since late November, and even with a decline during the week ending March 21, rates are still well above their low point and where they started the year.
Putting it all together
For anyone looking to buy or refinance a home, news that the Federal Reserve will continue to buy mortgage-backed securities and long-term bonds should be encouraging, since these policies have been instrumental in driving mortgage rates as low as they’ve gone. On the other hand, the fact mortgage rates had been rising in recent weeks despite those policies shows there are limits to what the Fed can control.
Mortgage lenders are no doubt aware they’re making a 30-year commitment to lend money at low rates, whereas Fed policies are subject to change from meeting to meeting. So, while the Fed can influence the market and push rates lower, there are limits to how far lenders feel comfortable going — and the market may already have reached those limits.
Inflation may ultimately force the hand of both mortgage lenders and the Fed. The Fed has stated repeatedly that continuing its low interest rate tactics is contingent on inflation remaining in check. If inflation continues to rise at February’s pace, the Fed may have to rethink its approach, and chances are mortgage lenders won’t wait for the Fed before they start raising rates.