The specter of a recession has returned, and with it, for some, the fear that mortgage rates will rise. However, the possible reaction of rates at this time is unknown. Is it safe to assume that mortgage rates will rise if the economy is in recession or predicted to enter one soon?
During economic downturns, interest rates tend to fall as a result of reduced loan demand, rising bond prices, and looser monetary policy from the central bank. The Federal Reserve has reduced short-term interest rates and made it easier for municipal and corporate borrowers to obtain loans during recent recessions.
To put it simply, the value of money is unlike any other price in the economy. The expansion and contraction of the economy are largely thought to be influenced by interest rates. Changes in borrowers’ preferences between saving and spending are reflected in market interest rates, as are changes in the availability of credit.
What Exactly is a Recession?
Two consecutive quarters of declining gross domestic product (GDP) is the quick and dirty definition of a recession. During the first half of the year 2022, that occurred.
An economy in recession is typically characterized by:
- High Unemployment
- Lower Retail Rates (Less spending)
- Negative GDP
- Fluctuating Income
What happens to Mortgage Interest Rates during a Recession?
It stands to reason that during a recession, fewer people would need mortgage loans, as decreased economic activity and increased unemployment go hand in hand. Rates of interest go down as demand goes down. We currently have high employment levels despite a slowing economy.
When people cut back on their spending, the economy suffers. The Federal Reserve may change interest rates during a recession in an effort to dampen the economy’s downturn. The markets can find stability and consumer confidence can increase, allowing for increased spending when this occurs. In any case, the recalculated interest rate is a factor in how financial institutions determine the rates they charge for loans and mortgages.
A major problem is that people tend to be more frugal and save more money during economic downturns, which means that loan demand is low. In both prosperous and difficult economic times, each of the many different kinds of mortgages available has its own set of advantages and disadvantages. It’s up to you and your lender to figure out how much risk is acceptable.
Borrowers can protect themselves from rising prices with fixed-rate mortgages by locking in a set monthly payment regardless of how much interest rates change. Borrowers who can maintain their fixed-rate mortgage payments during economic downturns are in a stronger position than those with market-sensitive adjustable-rate mortgages (ARMs).
Mortgage Loans in Jacksonville, FL
Give one of our experienced mortgage lenders in Jacksonville a call right now if you or a loved one needs a mortgage loan in Jacksonville. We at Bayway Mortgage Group have been assisting people like you in purchasing homes for over a decade. Contact Bayway Mortgage Group today!