Since the beginning of the year, mortgage rates have routinely set new record lows, but some experts now believe that the current levels could be even lower.
Interest rates on home loans have been below 4 percent for all but one week this year and only recently rose from the all-time record, but some experts now believe that if banks were willing to reduce their profits, they could hit alarmingly low levels, according to a report from the New York Times. Rates in some parts of the country are currently as low as 3.55 percent, but banks’ new profit margin requirements may have inflated that.
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“The banks may say, ‘We are offering you record low interest rates, so you should be as happy as a clam,’” Guy Cecala, publisher of Inside Mortgage Finance, a home loan publication, told the newspaper. “But borrowers could be getting them cheaper.”
In reality, consumers could be paying as little as 3.05 percent on their mortgage, the report said. Banks say that the higher costs — and commensurate profits that come with them — are being applied to home loans these days because they are pricier to originate due to federal regulation.
However, much of the profit comes from a combination of packaging mortgages with higher interest rates into bonds, which are then sold to investors, and also because there is now less competition within the home loan industry itself than there was prior to the recession, the report said. Many financial institutions have gone out of business or merged in the last several years, meaning that only a handful of large banks remain to issue mortgages on a broad scale.
The problem is that in many instances, there is little federal regulators can do to make banks charge the lower interest rates they could be giving consumers, the report said. For instance, if the Federal Reserve were to continue buying up mortgage bonds, that would actually increase banks’ profits because it would drive prices for those packages down and increase the margin between those and home loan rates.
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However, despite the fact that many consumers could theoretically be getting better deals on their home loans, home affordability has never been better thanks to low rates combined with still-depressed property values.